Royal Caribbean Cruises Ltd. (RCL, NYSE)
Industry: Travel Services
Annual report, fiscal year 2013


## Royal Caribbean Cruises Ltd.
2013 ANNUAL REPORT



Royal Caribbean Cruises Ltd. is the world’s second largest cruise company and also offers unique land-tour vacations in Alaska, Asia, Australia/New Zealand, Canada, Dubai, Europe and South America. The company owns six brands, Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises and CDF Croisières de France, as well as TUI Cruises through a 50 percent joint venture. Together, these six brands operate a combined total of 41 ships. They operate diverse itineraries around the world that call on approximately 490 destinations on all seven continents.

Onboard the ships, the brands offer an extensive array of activities, services and amenities, including simulated surfing, swimming pools, sun decks, beauty salons, exercise and spa facilities, ice skating rinks, in-line skating, basketball courts, rock climbing walls, miniature golf courses, gaming facilities, lounges, bars, Las Vegas-style entertainment, cinemas and Royal Promenades, which include interior shopping, dining and an entertainment boulevard.



The innovative North Star on Quantum of the Seas delivers an awe-inspiring vantage point never before available at sea. The capsule rises up to pivot out over the water, providing amazing 360-degree views of the decks below and the ocean beyond.



## FINANCIAL HIGHLIGHTS



<table><tr><td>dollars in thousands, except per share data</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Total Revenues</td><td>$7,959,894</td><td>$7,688,024</td><td>$7,537,263</td></tr><tr><td>Operating Income \( ^{1} \)</td><td>855,094</td><td>788,554</td><td>931,628</td></tr><tr><td>Net Income \( ^{1} \)</td><td>530,638</td><td>432,219</td><td>607,421</td></tr><tr><td>Earnings Per Share (diluted) \( ^{1} \)</td><td>2.40</td><td>1.97</td><td>2.77</td></tr><tr><td>Total Shareholders&#x27; Equity</td><td>8,808,265</td><td>8,308,749</td><td>8,407,823</td></tr></table>

 \( ^{1} $ 2013 excludes $56.9 million in restructuring and related impairment charges and 2012 excludes $413.9 million in impairment charges.










# OUR MESSAGE

DEAR FELLOW SHAREHOLDERS,

During 2013, we began to see the coming together of all our efforts over the last years. We realized material gains in our key financial metrics and set the stage for achieving the improved profitability and higher returns on investment that we need. All of this gives us a great sense of confidence as we sail into an exciting future.

## Material Gains with Key Financial Metrics

We continue to strengthen our balance sheet as we progress toward investment grade metrics, and in 2013 we leveraged the improving banking market to strengthen our liquidity position and to lower our financing costs with a series of constructive refinancings. We closed out 2013 with $1.9 billion in liquidity, reduced our debt by $400 million and doubled our quarterly dividend to $0.25 per share. We know keeping our capacity growth moderate is also prudent and that is why we announced no ship delivery for our consolidated brands in 2017. The cumulative effect of these actions reflects our focus on returns for our shareholders with increasing investment returns and profitability.

## Cost Discipline in Our Culture

One of our major focus areas has been on controlling costs and the results have been gratifying. Efforts at all levels of the organization enabled us to beat our budgets across the board in 2013. Control of our biggest single expense item—fuel—was particularly constructive as we maintained our position as having the lowest energy consumption per berth in the industry.

It is especially gratifying to see that our people are accomplishing all this while investing in our product and infrastructure. Guest satisfaction in 2013 reached record levels which will drive improved pricing in the future. And, just as importantly, our annual survey of crew satisfaction and engagement are at its highest level in our history.

## Revenue Yields Remain Key

As critical as controlling our costs are, the biggest potential improvement in our bottom line will come from improving revenue performance and we see great opportunity in this key area. Yields are still too low, but we are very encouraged by recent trends. Revenue yields grew by 3.2% which almost precisely equaled our prediction at the beginning of the year (a prediction that preceded all the bad press of 2013). Ticket yields were an important driver with the US market proving particularly strong and Europe providing some upside. Our ship upgrading efforts, technology and other enhancements drove transformative onboard revenue results. While we don’t expect such step changes to occur every year, 2013 performance demonstrates how aggressively we manage this element.

We now face 2014 with perhaps the clearest horizon we have seen in some time. The worst of the economic turbulence appears to be behind and we are hopeful that the upward trend continues. While still challenged, the global economy is showing improvement, with moderate growth in North America, slow but measurable recovery in Europe, and opportunity in emerging markets like China.

All of our brands are upping their game in the marketplace. Royal Caribbean International’s market positioning and newest ship are attracting great attention; Celebrity’s Modern Luxury positioning and marketing concentration are driving increased demand; Azamara Club Cruises’ destination intensification is changing the



whole segment; Pullmantur’s Latin strategy is beginning to gel; Croisières de France is expanding rapidly in France; and TUI cruises continues to beat expectations while preparing to take delivery of its new ship.



## A Quantum Leap in the Cruising Experience

2014 also brings us tangible proof of our commitment to pushing the boundaries of what is possible in the cruise experience. Quantum of the Seas debuts our first new class of ships since 2009. The ship is a marvel in ways that are readily apparent—like a 14-passenger capsule, inspired by the London Eye, that lifts guests more than 300 feet over the seas for spectacular views.

As with previous Royal Caribbean launches, Quantum is the most eagerly awaited ship in the cruise industry.

When you take a step back, you will realize that every Royal Caribbean ship has been the most anticipated in the industry, and there is a clear reason for that—we are maniacal about innovation and continuous improvement.

## Ready for the Markets That Are Ready to Cruise

We made a conscious choice years ago to build global brands, rather than take a purely multi-regional approach. This model allows us to shift sourcing to the highest demand markets to take advantage of the most profitable consumer segments. That choice has proven prescient in several ways, particularly in markets with a strengthening middle class: as consumers find themselves with the resources to take a cruise vacation they know the brands they want and many of those brands are ours. Royal Caribbean International has been well received in the China market, and we anticipate the opportunity to build the brand even further in that vital market.

In a similar way, 2014 is a year of transition for Pullmantur. Pullmantur has faced the biggest challenges of any of our businesses and has been a substantial drag on the whole group’s results. That will change. We have divested the non-core businesses which included a brick and mortar travel agency, a land tour company and a small airline operation. These businesses were not significant to our overall profitability and selling these businesses allows the Pullmantur brand to be focused on its core cruise business. During 2014, we expect to reinvigorate our position in Latin America, while protecting our leadership position in Spain. We are confident that the upside from Pullmantur will be meaningful to our results as they continue to recover throughout 2015 and beyond. Pullmantur—and the difficult economic environment it operates in—has been our biggest challenge; but it is ready to shift to becoming one of our biggest opportunities.

## Continuous Improvement Knows
No Boundaries

Our year of peak revenue yields was 2008 and while we’re almost back to those levels we are still not satisfied. Since 2006 we’ve added the Oasis, Solstice and Freedom classes to our fleet which today make up roughly 40% of our capacity. These ships are highly differentiated and continue to generate premium yields.

We are focused on the revenue and we believe that we have several factors that will help propel our yield growth moving forward: Quantum class and Oasis III, growth in China, Celebrity’s premium positioning, improvement in the European economies, strong onboard revenue, and Pullmantur’s strategy.

## Grateful for the Opportunity to Do the Work
We Love

We are all fortunate to work in a business that is focused on making people happy, bringing families together, and showing people the wonders of our world and its oceans. We are even more fortunate to work with some of the most talented and dedicated co-workers you could ever hope to find. Our success for the last 43 years has been driven by the extraordinary dedication and skill of our employees. Their passion and their skill are second to none and inspire me every day. The same can be said about the steadfast support of our Board of Directors, the investment community and you, our shareholders. I am grateful for your commitment to our company and for your recognition of the underlying strength of our business.

It is our pleasure to welcome everyone aboard the best ships in the world, and our opportunity to offer our guests the finest vacation they will ever have.



Richard D. Fain
Chairman and Chief Executive Officer



## THE SIX WHO SAIL

The company owns six brands, Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises and CDF Croisières de France, as well as TUI Cruises through a 50 percent joint venture. Together, these brands operate a combined total of 41 ships globally with a selection of itineraries that call on approximately 490 destinations on all seven continents. Onboard the ships, the brands offer an extensive array of activities, services and amenities, including simulated surfing, swimming pools, sun decks, beauty salons, exercise and spa facilities, ice skating rinks, in-line skating, basketball courts, rock climbing walls, miniature golf courses, gaming facilities, lounges, bars, Las Vegas-style entertainment, cinemas and Royal Promenades, which include interior shopping, dining and an entertainment boulevard.






ROYAL CARIBBEAN INTERNATIONAL The Royal Caribbean International brand delivered a vacation to nearly 3.5 million guests in 2013, sourcing from more than 217 countries. Royal Caribbean is the world's largest global cruise brand operating across 6 continents. Over the last 42 years, Royal Caribbean has a storied heritage of introducing never before seen features to cruising that WOW our guests and allow them to unleash their adventurous spirit. Across our fleet of 21 amazing ships, we have introduced Rock Climbing Walls, Flow Riders, Zip Lines and Broadway shows. Our brand's roots are seeded in providing guests of all ages with active and adventurous options providing an endless array of things to DO and SEE onboard and ashore. With 4 new ships on order, including the highly anticipated launch of Quantum of the Seas, Royal Caribbean has a pipeline of innovation that will continue to WOW existing guests and new cruisers. www.royalcaribbean.com



CELEBRITY CRUISES' iconic "X" is the mark of modern luxury, with its cool, contemporary design and warm spaces; dining experiences where the design of the venue is as important as the cuisine; and the amazing service that only Celebrity can provide, all created to provide an unmatchable experience for vacationers' precious time. Celebrity Cruises' 11 ships offer modern luxury vacations visiting all seven continents of the world. Celebrity also presents immersive vacation experiences across the globe. For more information, dial 1-800-437-3111, visit www.celebritycruises.com, or call your travel agent.






AZAMARA CLUB CRUISES operates two mid-sized ships, the Azamara Journey \( ^{®} \)  and Azamara Quest, \( ^{®} \)  each carrying up to 686 guests at full capacity. The brand serves an up-market segment of international travelers, with guests that tend to be curious and well-traveled. Azamara Club Cruises annually offers voyages featuring classic and less-traveled destinations in Asia, North, South and Central America, the West Indies, Northern and Western Europe and the Mediterranean. Azamara also periodically sails to Antarctica, and will begin visiting Australia in late 2015. The brand is recognized for its engaging onboard lifestyle and focus on Destination Immersion, made possible with longer stays, more overnights and night touring. To emphasize the destination experience, Azamara Club Cruises offers complimentary AzAmazing Evenings—bespoke events showcasing authentic cultural entertainment. Starting with the 2014 Europe season, the brand is offering optional small-group “Insider Access” Land Discoveries, and intimate evening experiences. www.azamaraclubcruises.com



PULLMANTUR is a contemporary cruise line based in Spain and Latin America. Acquired by Royal Caribbean Cruises Ltd. in 2006, Pullmantur began in Spain, where it is still the market leader and is strongly developing in Latin America. There is a relaxed and comfortable atmosphere onboard its four ships, which visit the Mediterranean, Baltic, Caribbean, and South America. www.pullmanturcruises.es









CROISIÈRES DE FRANCE is a contemporary brand tailor made for the French market. With 100,000 guests expected in 2014, it will reinforce their 3rd position on the French cruise market. Croisières de France has built its success on a unique, innovating concept celebrating an “all inclusive” French art of living. French is the unique language spoken onboard the Horizon and Zenith. The fine cuisine and wine selection suggested by the famous gastronomic guide, Gault&Millau, contribute to the most unique and personalized cruise experience and extraordinary service offered onboard to CDF’s guests. In addition, every year, all itineraries are renewed, allowing Croisières de France to sail the Mediterranean, Nordic and Caribbean seas. For the second year in a row, Croisières de France has been rewarded as the best value for money cruise company by French travel agents. www.cdfcroisieresdefrance.com



## CDF CROISIERES
DEFRANCE

TUI CRUISES is a joint venture, established in 2008, between Royal Caribbean Cruises Ltd. and German-based TUI A.G. This contemporary brand welcomes its first newbuild, the 1,250-passenger Mein Schiff 3, in 2014, bringing the TUI fleet to three vessels. The family and couples-focused line takes guests on Nordic, Baltic, Mediterranean and Caribbean cruises. www.tuicruises.com







## 2013






# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___

Commission file number: 1-11884

ROYAL CARIBBEAN CRUISES LTD.

(Exact name of registrant as specified in its charter)

Republic of Liberia
(State or other jurisdiction of incorporation or organization)

98-0081645
(I.R.S. Employer Identification No.)

1050 Caribbean Way, Miami, Florida 33132
(Address of principal executive offices) (zip code)

(305) 539-6000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, par value $.01 per share

Name of each exchange on which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( \( §232.405 \)  of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer [X]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [ ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of the registrant’s common stock at June 28, 2013 (based upon the closing sale price of the common stock on the New York Stock Exchange on June 28, 2013) held by those persons deemed by the registrant to be non-affiliates was approximately $5.8 billion. Shares of the registrant’s common stock held by each executive officer and director and by each entity or person that, to the registrant’s knowledge, owned 10% or more of the registrant’s outstanding common stock as of June 28, 2013 have been excluded from this number in that these persons may be deemed affiliates of the registrant. This determination of possible affiliate status is not necessarily a conclusive determination for other purposes.

There were 221,215,079 shares of common stock outstanding as of February 13, 2014.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement relating to its 2014 Annual Meeting of Shareholders are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.



## TABLE OF CONTENTS

PART I
ITEM 1. Business ..... 13
ITEM 1A. Risk Factors ..... 29
ITEM 1B. Unresolved Staff Comments ..... 36
ITEM 2. Properties ..... 36
ITEM 3. Legal Proceedings ..... 36
ITEM 4. Mine Safety Disclosures ..... 36
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ..... 37
ITEM 6. Selected Financial Data ..... 39
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 40
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk ..... 60
ITEM 8. Financial Statements and Supplementary Data ..... 62
ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure ..... 63
ITEM 9A. Controls and Procedures ..... 63
ITEM 9B. Other Information ..... 63
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance ..... 64
ITEM 11. Executive Compensation ..... 64
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..... 64
ITEM 13. Certain Relationships and Related Transactions, and Director Independence ..... 64
ITEM 14. Principal Accounting Fees and Services ..... 64
PART IV
ITEM 15. Exhibits, Financial Statement Schedules ..... 64
SIGNATURES ..... 65



As used in this Annual Report on Form 10-K, the terms “Royal Caribbean,” the “Company,” “we,” “our” and “us” refer to Royal Caribbean Cruises Ltd. and, depending on the context, Royal Caribbean Cruises Ltd.’s consolidated subsidiaries and/or affiliates. The terms “Royal Caribbean International,” “Celebrity Cruises,” “Pullmantur,” “Azamara Club Cruises,” “CDF Croisières de France,” and “TUI Cruises” refer to our cruise brands. However, because TUI Cruises is an unconsolidated investment, our operating results and other disclosures herein do not include TUI Cruises unless otherwise specified. In accordance with cruise vacation industry practice, the term “berths” is determined based on double occupancy per cabin even though many cabins can accommodate three or more passengers.

This Annual Report on Form 10-K also includes trade-marks, trade names and service marks of other companies. Use or display by us of other parties' trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, these other parties other than as described herein.

## ITEM 1. BUSINESS.

## GENERAL

Royal Caribbean was founded in 1968 as a partnership. Its corporate structure evolved over the years and the current parent corporation, Royal Caribbean Cruises Ltd., was incorporated on July 23, 1985 in the Republic of Liberia under the Business Corporation Act of Liberia.

We are the world’s second largest cruise company. We own Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, CDF Croisières de France and a 50% joint venture interest in TUI Cruises. Together, these six brands operate a combined 41 ships in the cruise vacation industry with an aggregate capacity of approximately 98,750 berths as of December 31, 2013.

Our ships operate on a selection of worldwide itineraries that call on approximately 490 destinations on all seven continents. In addition to our headquarters in Miami, Florida, we have offices and a network of international representatives around the world which primarily focus on our global guest sourcing.
We compete principally on the basis of exceptional service provided by our crew, innovation and quality of ships, variety of itineraries, choice of destinations and price. We believe that our commitment to build state-of-the-art ships and to invest in the maintenance and revitalization of our fleet to, among other things, incorporate our latest signature innovations, allows us to continue to attract new and loyal repeat guests.

We believe cruising continues to be a widely accepted vacation choice due to its inherent value, extensive itineraries and variety of shipboard and shoreside activities. In addition, we believe that our products appeal to a large consumer base and are not dependent on a single market or demographic.

## OUR BRANDS

Our global brands include Royal Caribbean International, Celebrity Cruises, and Azamara Club Cruises. These brands are complemented by our Pullmantur brand, which has been tailored to serve the cruise markets in Spain, Portugal and Latin America; our CDF Croisières de France brand, which provides us with a tailored product targeted at the French market; and our 50% joint venture TUI Cruises which is specifically tailored for the German market. The operating results of all of our brands are included in our consolidated results of operations, except for TUI Cruises, which is accounted for under the equity method of accounting. See Note 1. General and Note 6. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further details.

We believe our global brands possess the versatility to enter multiple cruise market segments within the cruise vacation industry. Although each of our brands has its own marketing style as well as ships and crews of various sizes, the nature of the products sold and services delivered by our brands share a common base (i.e., the sale and provision of cruise vacations). Our brands also have similar itineraries as well as similar cost and revenue components. In addition, our brands source passengers from similar markets around the world and operate in similar economic environments with a significant degree of commercial overlap. As a result, we strategically manage our brands as a single business with the ultimate objective of maximizing long-term shareholder value.



## Royal Caribbean International

We currently operate 21 ships with an aggregate capacity of approximately 59,650 berths under our Royal Caribbean International brand, offering cruise itineraries that range from two to 18 nights. In the fourth quarter of 2014, Royal Caribbean International is scheduled to take delivery of the 4,150 berth Quantum of the Seas, its first newbuild since 2010 and the first of a new generation of cruise ships. In addition, we currently have three other ships on order for our Royal Caribbean International brand with an aggregate capacity of approximately 13,700 berths. These include our third Oasis-class ship, which is scheduled to enter service in the second quarter of 2016 and the second and third Quantum-class ships which are scheduled to enter service in the second quarter of 2015 and the second quarter of 2016. Royal Caribbean International offers a variety of itineraries to destinations worldwide, including Alaska, Asia, Australia, Bahamas, Bermuda, Canada, the Caribbean, Europe, the Panama Canal, South America and New Zealand.

Royal Caribbean International is positioned at the upper end of the contemporary segment of the cruise vacation industry, generally characterized by cruises that are seven nights or shorter and feature a casual ambiance as well as a variety of activities and entertainment venues. We believe that the quality of the Royal Caribbean International brand also enables it to attract guests from the premium segment, which is generally characterized by cruises that are seven to 14 nights and appeal to the more experienced guest who is usually more affluent. This allows Royal Caribbean International to achieve market coverage that is among the broadest of any of the major cruise brands in the cruise vacation industry. Royal Caribbean International's strategy is to attract an array of vacationing guests by providing a wide variety of itineraries and cruise lengths with multiple innovative options for onboard dining, entertainment and other onboard activities. We believe that the variety and quality of Royal Caribbean International's product offerings represent excellent value to consumers, especially to couples and families traveling with children. Because of the brand's extensive and innovative product offerings, we believe Royal Caribbean International is well positioned to attract new consumers to the cruise vacation industry and to continue to bring loyal repeat guests back for their next vacation.

Royal Caribbean International has a vessel revitalization program designed to incorporate certain of the most popular features of our newer ships across the fleet. From 2011 to 2013, a total of 12 ships have been revitalized under this program. An additional two ships are scheduled for revitalization in 2014.

## Celebrity Cruises

We currently operate 11 ships with an aggregate capacity of approximately 24,900 berths under our Celebrity Cruises brand, offering cruise itineraries that range from three to 18 nights. Celebrity Cruises offers a variety of itineraries to popular destinations, including Alaska, Asia, Australia, Bermuda, Canada, the Caribbean, Europe, Hawaii, New Zealand, the Panama Canal and South America.

Celebrity Cruises is positioned within the premium segment of the cruise vacation industry. Celebrity Cruises' strategy is to target experienced cruisers and quality and service oriented new cruisers by delivering a destination-rich experience onboard upscale ships that offer, among other things, luxurious accommodations, a high staff-to-guest ratio, fine dining, personalized service and extensive spa facilities. The brand has a vessel revitalization program in order to incorporate well-received concepts from its Solstice-class ships.

## Azamara Club Cruises

We currently operate two ships with an aggregate capacity of approximately 1,400 berths under our Azamara Club Cruises brand, offering cruise itineraries that range from four to 18 nights. Azamara Club Cruises is designed to serve the up-market segment of the North American, United Kingdom and Australian markets. The up-market segment incorporates elements of the premium segment and the luxury segment which is generally characterized by smaller ships, high standards of accommodation and service, higher prices and exotic itineraries.

Azamara Club Cruises' strategy is to deliver distinctive destination experiences through unique itineraries with more overnights and longer stays as well as thorough tours allowing guests to experience the destination in more depth. Azamara Club Cruises' focus is to attract experienced travelers who are looking for more comprehensive destination experiences, and who seek a more intimate onboard experience and a high level of service. In furtherance of this strategy, Azamara Club Cruises includes as part of the base price of the cruise certain complimentary onboard services, amenities and activities which are not normally included in the base price of most other cruise lines. Azamara Club Cruises sails in Asia, Northern and Western Europe, the Mediterranean, South and Central America, the less-traveled islands of the Caribbean and North America.



## Pullmantur

During 2013, we operated four ships with an aggregate capacity of approximately 7,650 berths under our Pullmantur brand, offering cruise itineraries that ranged from four to 12 nights throughout South America, the Caribbean and Europe. One of these ships, Zenith, was redeployed from Pullmantur to CDF Croisières de France in January 2014. Pullmantur serves the contemporary segment of the Spanish, Portuguese and Latin American cruise markets. Pullmantur’s strategy is to attract cruise guests from these target markets by providing a variety of cruising options and onboard activities directed at couples and families traveling with children. Over the last few years, Pullmantur has systematically increased its focus on Latin America. In recognition of this, Pullmantur recently opened a regional head office in Panama to place the operating management closer to its largest and fastest growing market.

In order to facilitate Pullmantur’s ability to focus on its core cruise business, in December 2013, Pullmantur reached an agreement to sell the majority of its interest in its land-based tour operations, travel agency and Pullmantur Air, the closing of which is subject to customary closing conditions. In connection with the agreement, we will retain a 19% interest in the non-core businesses. We will retain ownership of the Pullmantur aircraft which will be dry leased to Pullmantur Air.

## CDF Croisières de France

In January 2014, we redeployed Zenith from Pullmantur to CDF Croisières de France. As a result, as of January 2014, we operate two ships with an aggregate capacity of approximately 2,750 berths under our CDF Croisières de France brand. During the summer of 2014, CDF Croisières de France will operate both ships in Europe and, for the first time, the brand will operate in the Caribbean during the winter of 2014. In addition, CDF Croisières de France offers seasonal itineraries to the Mediterranean. CDF Croisières de France is designed to serve the contemporary segment of the French cruise market by providing a brand tailored for French cruise guests.

## TUI Cruises

TUI Cruises is designed to serve the contemporary and premium segments of the German cruise market by offering a product tailored for German guests. All onboard activities, services, shore excursions and menu offerings are designed to suit the preferences of this target market. TUI Cruises operates two ships, Mein Schiff 1 and Mein Schiff 2, with an aggregate capacity of approximately 3,800 berths. In addition, TUI Cruises has two ships on order, each with a capacity of 2,500 berths, scheduled for delivery in the second quarter of 2014 and second quarter of 2015. TUI Cruises is a joint venture owned 50% by us and 50% by TUI AG, a German tourism and shipping company that also owns 51% of TUI Travel, a British tourism company.

## INDUSTRY

Cruising is considered a well-established vacation sector in the North American market, a growing sector over the long-term in the European market and a developing but promising sector in several other emerging markets.

Industry data indicates that market penetration rates are still low and that a significant portion of cruise guests carried are first-time cruisers. We believe this presents an opportunity for long-term growth and a potential for increased profitability.

The following table details market penetration rates for North America and Europe computed based on the number of annual cruise guests as a percentage of the total population:

<table><tr><td>Year</td><td>North America \( ^{(1)} \)</td><td>Europe \( ^{(2)} \)</td></tr><tr><td>2009</td><td>3.0%</td><td>1.0%</td></tr><tr><td>2010</td><td>3.1%</td><td>1.1%</td></tr><tr><td>2011</td><td>3.4%</td><td>1.1%</td></tr><tr><td>2012</td><td>3.3%</td><td>1.2%</td></tr><tr><td>2013</td><td>3.4%</td><td>1.2%</td></tr></table>

(1) Source: International Monetary Fund and Cruise Line International Association based on cruise guests carried for at least two consecutive nights for years 2009 through 2012. Year 2013 amounts represent our estimates. Includes the United States of America and Canada.

(2) Source: International Monetary Fund and CLIA Europe, formerly European Cruise Council, for years 2009 through 2012. Year 2013 amounts represent our estimates.

We estimate that the global cruise fleet was served by approximately 436,000 berths on approximately 269 ships at the end of 2013. There are approximately 26 ships with an estimated 71,000 berths that are expected to be placed in service in the global cruise market between 2014 and 2018, although it is also possible that ships could be ordered or taken out of service during these periods. We estimate that the global cruise industry carried 21.3 million cruise guests in 2013 compared to 20.9 million cruise guests carried in 2012 and 20.2 million cruise guests carried in 2011.



## PART I

The following table details the growth in global weighted average berths and the global, North American and European cruise guests over the past five years:

<table><tr><td>Year</td><td>Weighted-Average Supply of Berths Marketed Globally \( ^{(1)} \)</td><td>Royal Caribbean Cruises Ltd. Total Berths</td><td>Global Cruise Guests \( ^{(1)} \)</td><td>North American Cruise Guests \( ^{(2)} \)</td><td>European Cruise Guests \( ^{(3)} \)</td></tr><tr><td>2009</td><td>363,000</td><td>84,050</td><td>17,340,000</td><td>10,198,000</td><td>5,000,000</td></tr><tr><td>2010</td><td>391,000</td><td>92,300</td><td>18,800,000</td><td>10,781,000</td><td>5,540,000</td></tr><tr><td>2011</td><td>412,000</td><td>92,650</td><td>20,227,000</td><td>11,625,000</td><td>5,894,000</td></tr><tr><td>2012</td><td>425,000</td><td>98,650</td><td>20,898,000</td><td>11,640,000</td><td>6,139,000</td></tr><tr><td>2013</td><td>432,000</td><td>98,750</td><td>21,300,000</td><td>11,816,000</td><td>6,399,000</td></tr></table>

(1) Source: Our estimates of the number of global cruise guests and the weighted-average supply of berths marketed globally are based on a combination of data that we obtain from various publicly available cruise industry trade information sources including Seatrade Insider, Cruise Industry News and Cruise Line International Association (“CLIA”). In addition, our estimates incorporate our own statistical analysis utilizing the same publicly available cruise industry data as a base.

(2) Source: Cruise Line International Association based on cruise guests carried for at least two consecutive nights for years 2009 through 2012. Year 2013 amounts represent our estimates (see number 1 above). Includes the United States of America and Canada.

(3) Source: CLIA Europe, formerly European Cruise Council, for years 2009 through 2012. Year 2013 amounts represent our estimates (see number 1 above).

## North America

The majority of cruise guests are sourced from North America, which represented approximately 56% of global cruise guests in 2013. The compound annual growth rate in cruise guests sourced from this market was approximately 3.2% from 2009 to 2013.

## Europe

Cruise guests sourced from Europe represented approximately 30% of global cruise guests in 2013. The compound annual growth rate in cruise guests sourced from this market was approximately 6.0% from 2009 to 2013.

## Other Markets

In addition to expected industry growth in North America and Europe, we expect the Asia/Pacific region to demonstrate an even higher growth rate in the near term, although it will continue to represent a relatively small sector compared to North America and Europe. Based on industry data, cruise guests sourced from the Asia/Pacific region represented approximately 4.5% of global cruise guests in 2013. The compound annual growth rate in cruise guests sourced from this market was approximately 15% from 2011 to 2013.

## COMPETITION

We compete with a number of cruise lines. Our principal competitors are Carnival Corporation & plc, which owns, among others, Aida Cruises, Carnival Cruise Lines, Costa Cruises, Cunard Line, Holland America Line, Iberocruceros, P&O Cruises and Princess Cruises; Disney Cruise Line; MSC Cruises; Norwegian Cruise Line and Oceania Cruises. Cruise lines compete with other vacation alternatives such as land-based resort hotels and sightseeing destinations for consumers' leisure time. Demand for such activities is influenced by political and general economic conditions. Companies within the vacation market are dependent on consumer discretionary spending.

## OPERATING STRATEGIES

Our principal operating strategies are to:

• protect the health, safety and security of our guests and employees and protect the environment in which our vessels and organization operate,

• strengthen and support our human capital in order to better serve our global guest base and grow our business,

• further strengthen our consumer engagement in order to enhance our revenues,

• increase the awareness and market penetration of our brands globally,

• focus on cost efficiency, manage our operating expenditures and ensure adequate cash and liquidity, with the overall goal of maximizing our return on invested capital and long-term shareholder value,

• strategically invest in our fleet through the revitalization and maintenance of existing ships and the transfer of key innovations across each brand, while prudently expanding our fleet with new state-of-the-art cruise ships,

• capitalize on the portability and flexibility of our ships by deploying them into those markets and itineraries that provide opportunities to optimize returns, while continuing our focus on existing key markets,

• further enhance our technological capabilities to service customer preferences and expectations in an innovative manner, while supporting our strategic focus on profitability, and



• maintain strong relationships with travel agencies, which continue to be the principal industry distribution channel, while enhancing our consumer outreach programs.

## Safety, Environment and Health Policies

We are committed to protecting the safety, environment and health of our guests, employees and others working on our behalf. We are also committed to protecting the marine environment and communities in which we operate. As part of this commitment, our Safety, Environment and Health Department oversees our maritime safety, global security, environmental stewardship and medical/public health activities. Our dedication to these areas is guided by a Maritime Advisory Board of experts and overseen by the Safety, Environment and Health Committee of our Board of Directors. We publicly share our safety, environment and health performance through our annual Stewardship Report and through our report under the Global Reporting Initiative, each of which can be accessed on our brand websites. Our brand websites also provide information about our Environmental Performance Goals and our voluntary reporting of onboard security incidents. The foregoing information contained on our websites is not a part of any of these reports and is not incorporated by reference herein or in any other report or document we file with the Securities and Exchange Commission.

## Human Capital

We believe that our employees, both shipboard and shoreside, are a critical success factor for our business. We strive to identify, hire, develop, motivate, and retain the best employees, with backgrounds and perspectives as diverse as our guest base. Attracting, engaging, and retaining key employees has been and will remain critical to our success.

We continue our focus on providing our employees with a competitive compensation structure, development and other personal and professional growth opportunities in order to strengthen and support our human capital. We also seek to select, develop and retain leaders to advance the enterprise now and in the future. To that end, we pay special attention to identifying high performing potential leaders and developing deep bench strength so these leaders can assume leadership roles throughout the organization. We strive to maintain a work environment that reinforces collaboration, motivation and innovation, and believe that maintaining our vibrant and distinctive culture is critical to the growth of our business.

## Consumer Engagement

We place a strong focus on identifying the needs of our guests and creating product features that our customers value. We are focused on targeting high-value guests by better understanding consumer data and insights and creating communication strategies that best resonate with our target audiences.

We interact with customers across all touch points and seek to identify underlying needs for which guests are willing to pay a premium. We rely on various programs prior to, during and after a cruise vacation aimed at increasing our ticket prices, onboard revenues and occupancy. We have strategically invested in a number of projects onboard our ships, including the implementation of new onboard revenue initiatives that we believe drive profitability and improve the guest experience.

## Global Awareness and Market Penetration

We increase brand awareness and market penetration of our cruise brands in various ways, including through the use of communication strategies and marketing campaigns designed to emphasize the unique qualities of each brand and to broaden the awareness of the brand, especially among the brand target customer groups. Our marketing strategies include the use of traditional media, social media, brand websites and travel agencies. Our brands engage past and potential guests by collaborating with travel partners and through call centers, international offices and international representatives. In addition, Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises target repeat guests with exclusive benefits offered through their respective loyalty programs.

We also increase brand awareness across all of our brands through travel agencies who generate the majority of our bookings. We are committed to further developing and strengthening this very important distribution channel by continuing to focus the travel agents on the unique qualities of each of our brands.

We sell and market our global brands, Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises, to guests outside of North America through our offices in the United Kingdom, France, Germany, Norway, Italy, Spain, Singapore, China, Brazil, Australia and Mexico. We believe that having a local presence in these markets provides us with the ability to react more quickly to local market conditions and better understand our consumer base in each market. We further extend our geographic reach with a network of



36 independent international representatives located throughout the world covering 112 countries. Historically, our focus has been to primarily source guests for our global brands from North America. Over the last several years, we have continued to expand our focus on selling and marketing our cruise brands to guests in countries outside of North America by tailoring itineraries and onboard product offerings to the cultural characteristics and preferences of our international guests. In addition, we explore opportunities that may arise to acquire or develop brands tailored to specific markets.

Passenger ticket revenues generated by sales originating in countries outside of the United States were approximately 48% of total passenger ticket revenues in 2013 and 49% in 2012 and 2011. International guests have grown from approximately 1.5 million in 2009 to approximately 2.3 million in 2013.

## Cost Efficiency, Operating Expenditures and Adequate Cash and Liquidity

We continue our commitment to identify and implement cost containment initiatives. Our most recent initiatives relate to realizing economies of scale and improving service delivery to our travel partners and guests by restructuring and consolidating our global sales, marketing, general and administrative structure. We also continue our initiatives to reduce energy consumption and, by extension, fuel costs. These include the design of more fuel-efficient ships as well as the implementation of more efficient hardware, including propulsion and cooling systems incorporating energy efficiencies.

We are focused on maintaining a strong liquidity position, reducing our debt and improving our credit metrics. In addition, we continue to pursue our long-term objective of returning our credit ratings to investment grade. We believe these strategies enhance our ability to achieve our overall goal of maximizing our return on invested capital and long-term shareholder value.

## Fleet Revitalization, Maintenance and Expansion

We place a strong focus on product innovation, which we seek to achieve by introducing new concepts on our new ships and continuously making improvements to our fleet. Several of these innovations have become signature elements of our brands, such as the “Royal Promenade” (a boulevard with shopping, dining and entertainment venues) for the Royal Caribbean International brand and enhanced design features found on our Solstice-class ships for the Celebrity Cruises brand.

We are committed to building state-of-the-art ships and our brands, including our 50% joint venture TUI Cruises, currently have signed agreements for the construction of six new ships. These consist of three Quantum-class ships which are scheduled to enter service in the fourth quarter of 2014 and the second quarters of 2015 and 2016, one Oasis-class ship, which is scheduled to enter service in the second quarter of 2016, and two ships of a new generation for TUI Cruises, which are scheduled to enter service in the second quarters of 2014 and 2015. These additions are expected to increase our passenger capacity by approximately 22,850 berths by December 31, 2016, or approximately 23.1%, as compared to our capacity as of December 31, 2013. We continuously evaluate opportunities to order new ships, purchase existing ships or sell ships in our current fleet.

Our revitalization and maintenance programs enable us to incorporate many of our latest signature innovations throughout the brand fleet and allow us to benefit from economies of scale by leveraging our suppliers. Ensuring consistency across our fleet provides us with the flexibility to redeploy our ships among our brand portfolio.

## Markets and Itineraries

In an effort to penetrate untapped markets, diversify our consumer base and respond to changing economic and geopolitical market conditions, we continue to seek opportunities to optimally deploy ships to new and stronger markets and itineraries throughout the world. The portability of our ships allows us to readily deploy our ships to meet demand within our existing cruise markets. We make deployment decisions with the goal of optimizing the overall profitability of our portfolio, with these decisions generally made 12 to 18 months in advance. Additionally, the infrastructure investments we have made in creating a flexible global sourcing model has made our brand relevant in a number of markets around the world, which allows us to be opportunistic and source the highest yielding guests for our itineraries.

Our ships offer a wide selection of itineraries that call on approximately 490 destinations in 103 countries, spanning all seven continents. We are focused on obtaining the best possible long-term shareholder returns by operating in established markets while growing our presence in developing markets. New capacity allows us to expand into new markets and itineraries. Our brands have expanded their mix of itineraries while strengthening our ability to further penetrate the Asian, Australian, Caribbean, and Latin American markets. Additionally, in order to capitalize on the summer season in the Southern Hemisphere and mitigate the impact of the winter weather in the Northern Hemisphere, our brands have focused on deployment in Australia and Latin America during that period.



In an effort to secure desirable berthing facilities for our ships, and to provide new or enhanced cruise destinations for our guests, we actively assist or invest in the development or enhancement of certain port facilities and infrastructure, including mixed-use commercial properties, located in strategic ports of call. Generally, we collaborate with local, private or governmental entities by providing management and/or financial assistance and often enter into long-term port usage arrangements. Our participation in these efforts is generally accomplished via investments with the relevant government authority and/or various other strategic partnerships established to develop and/or operate the port facilities, by providing direct development and management expertise or in certain limited circumstances, by providing direct or indirect financial support. In exchange for our involvement, we generally secure preferential berthing rights for our ships.

## Technological Capabilities

The need to develop and use innovative technology is increasingly important. Technology is a pervasive part of virtually every business process we use to support our strategic focus and provide a quality experience to our customers before, during and after their cruise. Moreover, as the use of our various websites and social media platforms continue to increase along with the increasing use of technology onboard our ships by both our guests and crew, we continually need to upgrade our systems, infrastructure and technologies to facilitate this growth. As a result, we have launched several new initiatives, which included among other improvements, revamped websites, new vacation packaging capabilities, support of mobile apps and increased bandwidth onboard our ships helping our guests remain well-connected while at sea.

To support our strategic focus on improving revenue yields, we began to implement new capabilities to improve our revenue management systems and decision support processes in advance of our WAVE season (traditionally the first two months of the year where cruise lines experience disproportionately higher volume cruise sales). As part of this effort, we have introduced new price optimization tools and pricing and promotion management capabilities in our reservations system. We also provided our sales force with new tools to better support our travel agents.

## Travel Agency Support and Direct Business

Travel agencies continue to be the primary source of ticket sales for our ships. We believe in the value of this distribution channel and invest heavily in maintaining strong relationships with our travel partners. To accomplish this goal, we seek to ensure that our commission rates and incentive structures remain competitive with the marketplace. We provide brand dedicated sales representatives who serve as advisors to our travel partners. We also provide trained customer service representatives, call centers and online training tools.

To support our direct sales initiatives, we have established a Consumer Outreach department which allows consumers 24-hour access to our vacation planners, group vacation planners and customer service agents in our call centers. In addition, we maintain and invest in our websites, including mobile applications and mobile websites, which allow guests to directly plan, book and customize their cruise, as well as encourage guests to book their next cruise vacations onboard our ships.

## GUEST SERVICES

We offer to handle virtually all travel aspects related to guest reservations and transportation, including arranging guest pre- and post-hotel stay arrangements and air transportation.

Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises offer rewards to their guests through their loyalty programs, Crown & Anchor Society, Captain’s Club and Le Club Voyage, respectively, to encourage repeat business. Crown & Anchor Society has over 7.8 million members worldwide. Captain’s Club and Le Club Voyage have 2.5 million members combined worldwide. Members earn increasing membership status by accumulating cruise points or credits, depending on the brand, which may be redeemed on future sailings. Members are awarded points or credits in proportion to the number of cruise days and stateroom category. The loyalty programs provide certain tiers of membership benefits which can be redeemed by guests after accumulating the number of cruise points or credits specified for each tier. In addition, upon achieving a certain level of cruise points or credits, members benefit from reciprocal membership benefits across all of our loyalty programs. Examples of the rewards available under our loyalty programs include, but are not limited to, priority ship embarkation, priority waitlist for shore excursions, complimentary laundry service, complimentary internet, booklets with onboard discount offers, upgraded bathroom amenities, private seating on the pool deck, ship tours and, in the case of our most loyal guests who have achieved the highest levels of cruise points or credits, complimentary cruises. We regularly work to enhance each of our loyalty programs by adding new features and amenities in order to reward our repeat guests.



## PART I

## OPERATIONS

## Cruise Ships and Itineraries

As of December 31, 2013, our brands, including our 50% joint venture TUI Cruises, operate 41 ships with a selection of worldwide itineraries ranging from two to 23 nights that call on approximately 490 destinations.

The following table presents summary information concerning the ships we will operate in 2014 under these six cruise brands and their geographic areas of operation based on 2014 itineraries (subject to change).

<table><tr><td>Ship</td><td>Year Ship Entered Service(1)</td><td>Approximate Berths</td><td>Primary Areas of Operation</td></tr><tr><td>Royal Caribbean International</td><td></td><td></td><td></td></tr><tr><td>Quantum of the Seas</td><td>2014</td><td>4,150</td><td>Bahamas, Eastern/Southern Caribbean</td></tr><tr><td>Allure of the Seas</td><td>2010</td><td>5,400</td><td>Eastern/Western Caribbean</td></tr><tr><td>Oasis of the Seas</td><td>2009</td><td>5,400</td><td>Eastern/Western Caribbean, Europe</td></tr><tr><td>Independence of the Seas</td><td>2008</td><td>3,600</td><td>Europe, Eastern/Western Caribbean</td></tr><tr><td>Liberty of the Seas</td><td>2007</td><td>3,600</td><td>Europe, Short Caribbean</td></tr><tr><td>Freedom of the Seas</td><td>2006</td><td>3,600</td><td>Eastern/Western Caribbean</td></tr><tr><td>Jewel of the Seas</td><td>2004</td><td>2,100</td><td>Southern Caribbean</td></tr><tr><td>Mariner of the Seas</td><td>2003</td><td>3,100</td><td>Asia</td></tr><tr><td>Serenade of the Seas</td><td>2003</td><td>2,100</td><td>Western Caribbean, Europe</td></tr><tr><td>Navigator of the Seas</td><td>2002</td><td>3,250</td><td>Western Caribbean</td></tr><tr><td>Brilliance of the Seas</td><td>2002</td><td>2,100</td><td>Europe, Western Caribbean, Canada</td></tr><tr><td>Adventure of the Seas</td><td>2001</td><td>3,100</td><td>Southern Caribbean, Europe</td></tr><tr><td>Radiance of the Seas</td><td>2001</td><td>2,100</td><td>Alaska, Australia/New Zealand</td></tr><tr><td>Explorer of the Seas</td><td>2000</td><td>3,100</td><td>Eastern/Southern Caribbean, Bermuda, Canada</td></tr><tr><td>Voyager of the Seas</td><td>1999</td><td>3,250</td><td>Asia, Australia/New Zealand</td></tr><tr><td>Vision of the Seas</td><td>1998</td><td>2,000</td><td>Western Caribbean, Short Caribbean, Southern Caribbean, Bermuda</td></tr><tr><td>Enchantment of the Seas</td><td>1997</td><td>2,250</td><td>Bahamas</td></tr><tr><td>Rhapsody of the Seas</td><td>1997</td><td>2,000</td><td>Australia/New Zealand, Alaska</td></tr><tr><td>Grandeur of the Seas</td><td>1996</td><td>1,950</td><td>Southern/Eastern/Western Caribbean, Bermuda, Canada</td></tr><tr><td>Splendour of the Seas</td><td>1996</td><td>1,800</td><td>Europe, Brazil</td></tr><tr><td>Legend of the Seas</td><td>1995</td><td>1,800</td><td>Europe, Eastern/Southern Caribbean, Panama Canal</td></tr><tr><td>Majesty of the Seas</td><td>1992</td><td>2,350</td><td>Bahamas</td></tr><tr><td>Celebrity Cruises</td><td></td><td></td><td></td></tr><tr><td>Celebrity Reflection</td><td>2012</td><td>3,000</td><td>Europe, Eastern/Western Caribbean</td></tr><tr><td>Celebrity Silhouette</td><td>2011</td><td>2,850</td><td>Europe, Eastern/Western Caribbean</td></tr><tr><td>Celebrity Eclipse</td><td>2010</td><td>2,850</td><td>Europe, Southern Caribbean</td></tr><tr><td>Celebrity Equinox</td><td>2009</td><td>2,850</td><td>Europe, Eastern/Western Caribbean</td></tr><tr><td>Celebrity Solstice</td><td>2008</td><td>2,850</td><td>Alaska, Australia/New Zealand</td></tr><tr><td>Celebrity Constellation</td><td>2002</td><td>2,150</td><td>Short Caribbean, Eastern Caribbean, Europe</td></tr><tr><td>Celebrity Summit</td><td>2001</td><td>2,150</td><td>Southern Caribbean, Bermuda, Canada</td></tr><tr><td>Celebrity Infinity</td><td>2001</td><td>2,150</td><td>Europe, Panama Canal, S. America</td></tr><tr><td>Celebrity Millennium</td><td>2000</td><td>2,150</td><td>Alaska, Asia, Panama Canal</td></tr><tr><td>Celebrity Century</td><td>1995</td><td>1,800</td><td>Alaska, Hawaii, Panama Canal, Australia</td></tr><tr><td>Celebrity Xpedition(2)</td><td>2004</td><td>100</td><td>Galapagos Islands</td></tr><tr><td>Azamara Club Cruises</td><td></td><td></td><td></td></tr><tr><td>Azamara Quest(3)</td><td>2006</td><td>700</td><td>Europe, South/Central America, Asia</td></tr><tr><td>Azamara Journey(3)</td><td>2004</td><td>700</td><td>Europe, Asia, South America</td></tr><tr><td>Pullmantur(4)</td><td></td><td></td><td></td></tr><tr><td>Monarch of the Seas</td><td>1991</td><td>2,350</td><td>Southern Caribbean</td></tr><tr><td>Empress</td><td>1990</td><td>1,600</td><td>Europe, Brazil</td></tr><tr><td>Sovereign</td><td>1988</td><td>2,300</td><td>Europe, Brazil</td></tr><tr><td>CDF Croisières de France</td><td></td><td></td><td></td></tr><tr><td>Horizon(5)</td><td>2010</td><td>1,350</td><td>Europe, Southern Caribbean</td></tr><tr><td>Zenith(6)</td><td>1992</td><td>1,400</td><td>Europe, Brazil</td></tr><tr><td>TUI Cruises</td><td></td><td></td><td></td></tr><tr><td>Mein Schiff 3</td><td>2014</td><td>2,500</td><td>Europe, Canary Islands</td></tr><tr><td>Mein Schiff 2(7)</td><td>2011</td><td>1,900</td><td>Europe, Middle East</td></tr><tr><td>Mein Schiff 1(8)</td><td>2009</td><td>1,900</td><td>Europe, Southern Caribbean</td></tr><tr><td>Total</td><td></td><td>105,700</td><td></td></tr></table>

(1) The year a ship entered service refers to the year in which the ship commenced cruise revenue operations for the Company, which is the same as the year the ship was built, unless otherwise noted.

(2) Originally built in 2001.

(3) Originally built in 2000.

(4) Does not include Pullmantur’s Ocean Dream as it was delivered to an unrelated third party in April 2012 as part of a six-year bareboat charter agreement. The charter agreement provides a renewal option exercisable by the unrelated third party for an additional four years.

(5) Originally built in 1990.

(6) Zenith was redeployed from Pullmantur to CDF Croisières de France in January 2014.

(7) Originally built in 1997.

(8) Originally built in 1996.



## PART I

Our brands, including our 50% joint venture, TUI Cruises, have six ships on order. Three ships on order are being built in Germany by Meyer Werft GmbH, two are being built in Finland by STX Finland and one will be built in France by STX France. The expected dates that our ships on order will enter service and their approximate berths are as follows:

<table><tr><td>Ship</td><td>Expected to Enter Service</td><td>Approximate Berths</td></tr><tr><td>Royal Caribbean International—</td><td></td><td></td></tr><tr><td>Quantum-class:</td><td></td><td></td></tr><tr><td>Quantum of the Seas</td><td>4th Quarter 2014</td><td>4,150</td></tr><tr><td>Anthem of the Seas</td><td>2nd Quarter 2015</td><td>4,150</td></tr><tr><td>Unnamed</td><td>2nd Quarter 2016</td><td>4,150</td></tr><tr><td>Oasis-class:</td><td></td><td></td></tr><tr><td>Unnamed</td><td>2nd Quarter 2016</td><td>5,400</td></tr><tr><td>TUI Cruises—</td><td></td><td></td></tr><tr><td>Mein Schiff 3</td><td>2nd Quarter 2014</td><td>2,500</td></tr><tr><td>Mein Schiff 4</td><td>2nd Quarter 2015</td><td>2,500</td></tr><tr><td>Total Berths</td><td></td><td>22,850</td></tr></table>

## Seasonality

Our revenues are seasonal based on the 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 in Australia and Latin America during that period.

## Passengers and Capacity

Selected statistical information is shown in the following table (see Description of Certain Line Items and Selected Operational and Financial Metrics under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, for definitions):

<table><tr><td>Year Ended December 31,</td><td>2013</td><td>2012</td><td>2011</td><td>2010</td><td>2009</td></tr><tr><td>Passengers Carried</td><td>4,884,763</td><td>4,852,079</td><td>4,850,010</td><td>4,585,920</td><td>3,970,278</td></tr><tr><td>Passenger Cruise Days</td><td>35,561,772</td><td>35,197,783</td><td>34,818,335</td><td>32,251,217</td><td>28,503,046</td></tr><tr><td>Available Passenger Cruise Days (APCD)</td><td>33,974,852</td><td>33,705,584</td><td>33,235,508</td><td>30,911,073</td><td>27,821,224</td></tr><tr><td>Occupancy</td><td>104.7%</td><td>104.4%</td><td>104.8%</td><td>104.3%</td><td>102.5%</td></tr></table>

## Cruise Pricing

Our cruise ticket prices include accommodations and a wide variety of activities and amenities, including meals and entertainment. Prices vary depending on many factors including the destination, cruise length, stateroom category selected and the time of year the cruise takes place. Although we grant credit terms in select markets mainly outside of the United States, our payment terms generally require an upfront deposit to confirm a reservation, with the balance due prior to the sailing. During the selling period of a cruise, we continually monitor and adjust our cruise ticket prices for available guest staterooms based on demand, with the objective of maximizing net yields. In 2013, we launched new initiatives, which enable us to set pricing and leverage enhancements for the web and our reservation systems. During 2014, we will continue to develop and implement revenue management tools that we believe will enable us to better understand and react to the current demand and pricing environment. Historically, we have opened cruises for sale at least one year in advance and often as much as two years in advance. Our air transportation program is available in major cities around the world and prices vary by gateway and destination. Generally, air tickets are sold to guests at prices close to cost.
Passenger ticket revenues accounted for approximately 72% of total revenues in 2013 and approximately 73% of total revenues in 2012 and 2011. While none of our brands are currently charging fuel supplements, we have introduced temporary fuel supplements from time to time.

## Onboard Activities and Other Revenues

Our cruise brands offer modern fleets with a wide array of onboard services, amenities and activities which vary by brand and ship. While many onboard activities are included in the base price of a cruise, we realize additional revenues from, among other things, gaming, the sale of alcoholic and other beverages, gift shop items, shore excursions, photography, spa/salon and fitness services, art auctions, catalogue gifts for guests and a wide variety of specialty restaurants and dining options. Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises offer functionality on their respective internet sites for selecting shore excursions, specialty dining and amenities prior to embarkation.



In conjunction with our cruise vacations, we offer pre-and post-cruise hotel packages to our Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises guests. During 2013, we expanded the markets in which we sell our cruise vacation protection coverage, which provides guests with coverage for trip cancellation, medical protection and baggage protection. Onboard and other revenues accounted for approximately 28% of total revenues in 2013 and approximately 27% of total revenues in 2012 and 2011.

## SEGMENT REPORTING

We operate five wholly-owned cruise brands, Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisières de France. In addition, we have a 50% investment in a joint venture with TUI AG which operates the brand TUI Cruises. We believe our global brands possess the versatility to enter multiple cruise market segments within the cruise vacation industry. Although each of our brands has its own marketing style as well as ships and crews of various sizes, the nature of the products sold and services delivered by our brands share a common base (i.e., the sale and provision of cruise vacations). Our brands also have similar itineraries as well as similar cost and revenue components. In addition, our brands source passengers from similar markets around the world and operate in similar economic environments with a significant degree of commercial overlap. As a result, our brands (including TUI Cruises) have been aggregated as a single reportable segment based on the similarity of their economic characteristics, types of consumers, regulatory environment, maintenance requirements, supporting systems and processes as well as products and services provided. Our Chairman and Chief Executive Officer has been identified as the chief operating decision-maker and all significant operating decisions including the allocation of resources are based upon the analyses of the Company as one segment. (For financial information see Item 8. Financial Statements and Supplementary Data.)

## EMPLOYEES

As of December 31, 2013, we employed approximately 64,000 employees, including 57,000 shipboard employees as well as 6,200 full-time and 700 part-time employees in our shoreside operations. As of December 31, 2013, approximately 80% of our shipboard employees were covered by collective bargaining agreements.

## INSURANCE

We maintain insurance on the hull and machinery of our ships, which includes additional coverage for disbursements, earnings and increased value, which are maintained in amounts related to the net book value of each ship. The coverage for each of the hull policies is maintained with syndicates of insurance underwriters from the British, Scandinavian, French, United States and other international insurance markets.

We maintain liability protection and indemnity insurance for each of our ships through either the United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited or the Steamship Mutual Underwriting Association (Bermuda) Limited. Our protection and indemnity liability insurance is done on a mutual basis and we are subject to additional premium calls in amounts based on claim records of all members of the mutual protection and indemnity association. We are also subject to additional premium calls based on investment shortfalls experienced by the insurer.

We maintain war risk insurance which covers damage due to acts of war, including invasion, insurrection, terrorism, rebellion, piracy and hijacking, on each ship, through a Norwegian war risk insurance organization. This coverage includes coverage for physical damage to the ship which is not covered under the hull policies as a result of war exclusion clauses in such hull policies. We also maintain protection and indemnity war risk coverage for risks that would be excluded by the rules of the indemnity insurance organizations, subject to certain limitations. Consistent with most marine war risk policies, under the terms of our war risk insurance coverage, underwriters can give seven days notice to us that the policy will be canceled and reinstated at higher premium rates.

Insurance coverage for shoreside property, shipboard inventory, and general liability risks are maintained with insurance underwriters in the United States and the United Kingdom.

We do not carry business interruption insurance for our ships based on our evaluation of the risks involved and protective measures already in place, as compared to the cost of insurance.

All insurance coverage is subject to certain limitations, exclusions and deductible levels. In addition, in certain circumstances, we either self-insure or co-insure a portion of these risks. Premiums charged by insurance carriers, including carriers in the maritime insurance industry, increase or decrease from time to time and tend to be cyclical in nature. These cycles are impacted both by our own loss experience and by losses incurred in direct and reinsurance markets. We historically have been able to obtain insurance coverage in amounts and at premiums we have deemed to be commercially acceptable. No assurance can be given that affordable and secure insurance markets will be available to us in the future, particularly for war risk insurance.



Recent European Union regulations (effective December 31, 2012) and the 2002 Protocol to the Athens Convention (effective April 2014 for countries that have ratified the Protocol) both provide for substantial increases to the level of compulsory insurance which must be maintained by passenger ship operators. Compliance with these EU regulations has not had a material impact on operating costs and we do not expect that compliance with the 2002 Protocol, when it becomes effective, will have a material impact on our operating costs.

## TRADEMARKS

We own a number of registered trademarks related to the Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisières de France cruise brands. The registered trademarks include the name “Royal Caribbean International” and its crown and anchor logo, the name “Celebrity Cruises” and its “X” logo, the name “Azamara Club Cruises” and its globe with an “A” logo, the names “Pullmantur Cruises” and “Pullmantur” and their logos, the name “CDF Croisières de France” and its logo, and the names of various cruise ships. We believe our trademarks are widely recognized throughout the world and have considerable value.

## REGULATION

Our ships are regulated by various international, national, state and local laws, regulations and treaties in force in the jurisdictions in which they operate. In addition, our ships are registered in the Bahamas, Malta or in the case of Celebrity Xpedition, Ecuador. Each ship is subject to regulations issued by its country of registry, including regulations issued pursuant to international treaties governing the safety of our ships, guests and crew as well as environmental protection. Each country of registry conducts periodic inspections to verify compliance with these regulations as discussed more fully below. Ships operating out of United States ports are subject to inspection by the United States Coast Guard for compliance with international treaties and by the United States Public Health Service for sanitary and health conditions. Our ships are also subject to similar inspections pursuant to the laws and regulations of various other countries our ships visit.

We believe that we are in material compliance with all the regulations applicable to our ships and that we have all licenses necessary to conduct our business. Health, safety, security, environmental and financial responsibility issues are, and we believe will continue to be, an area of focus by the relevant government authorities in the United States and internationally. From time to time, various regulatory and legislative changes may be proposed that could impact our operations and subject us to increasing compliance costs in the future.

## Safety and Security Regulations

Our ships are required to comply with international safety standards defined in the International Convention for Safety of Life at Sea (“SOLAS”), which among other things, establishes requirements for ship design, structural features, materials, construction, life saving equipment and safe management and operation of ships to ensure guest and crew safety. The SOLAS standards are revised from time to time and the most recent modifications were phased in through 2010. Compliance with these modified standards did not have a material effect on our operating costs. SOLAS incorporates the International Safety Management Code (“ISM Code”), which provides an international standard for the safe management and operation of ships and for pollution prevention. The ISM Code is mandatory for all vessels, including passenger vessel operators.

All of our operations and ships are regularly audited by various national authorities and maintain the required certificates of compliance with the ISM Code.

Our ships are subject to various security requirements, including the International Ship and Port Facility Security Code (“ISPS Code”), which is part of SOLAS, and the U.S. Maritime Transportation Security Act of 2002 (“MTSA”), which applies to ships that operate in U.S. ports. In order to satisfy these security requirements, we implement security measures, conduct vessel security assessments, and develop security plans. The security plans for all of our ships have been submitted to and approved by the respective countries of registry for our ships in compliance with the ISPS Code and the MTSA.

The Cruise Vessel Security and Safety Act of 2010, which applies to passenger vessels which embark or include port stops within the United States, requires the implementation of certain safety design features as well the establishment of practices for the reporting of and dealing with allegations of crime. The cruise industry supported this legislation and we believe that our internal standards are generally as strict or stricter than the law requires. A few provisions of the law call for regulations which have not yet been issued. We expect the U.S. Coast Guard to issue these regulations in 2014. While we cannot predict the full scope of such regulations, we believe we already meet or exceed the requirements of the act and do not expect any material costs due implementing these regulations.



## Environmental Regulations

We are subject to various United States and international laws and regulations relating to environmental protection. Under such laws and regulations, we are prohibited from, among other things, discharging certain materials, such as petrochemicals and plastics, into the waterways. We have made, and will continue to make, capital and other expenditures to comply with environmental laws and regulations. From time to time, environmental and other regulators consider more stringent regulations, which may affect our operations and increase our compliance costs. We believe that the impact of ships on the global environment will continue to be an area of focus by the relevant authorities throughout the world and, accordingly, may subject us to increasing compliance costs in the future, including the items described below.

Our ships are subject to the International Maritime Organization’s (“IMO”) regulations under the International Convention for the Prevention of Pollution from Ships (the “MARPOL Regulations”), which includes requirements designed to minimize pollution by oil, sewage, garbage and air emissions. We have obtained the relevant international compliance certificates relating to oil, sewage and air pollution prevention for all of our ships.

The MARPOL Regulations impose global limitations on the sulfur content of fuel used by ships operating worldwide. Permitted sulfur content was reduced from 4.5% to 3.5% on January 1, 2012. This reduction has not had a material effect on our fuel and operating costs.

The MARPOL Regulations also establish special Emission Control Areas (“ECAs”) with stringent limitations on sulfur and nitrogen oxide emissions in these areas. As of February 2014, there are four established ECAs: the Baltic Sea, the North Sea/English Channel, certain of the waters surrounding the North American coast, and the waters surrounding Puerto Rico and the U.S. Virgin Islands. Since July 1, 2010, ships operating in ECAs are required to operate on fuel with a sulfur content of 1.0%. These ECA sulfur content reductions have not had a material impact on our results of operations.

Beginning January 1, 2015, ships operating in ECAs will be required to further reduce their fuel sulfur content to 0.1%. We have been planning for this additional requirement for the last several years and continue to take steps to mitigate the potential impact on our fuel cost. All of our ships on order, including those for TUI Cruises, will be built with advanced exhaust purification (“AEP”) systems covering all engines. As these new vessels are delivered, they will provide us with additional operational and deployment flexibility. In addition, we have been actively developing and testing AEP systems on our existing fleet. We have received exemptions for six of our ships which will apply while they are sailing in the North American and Caribbean ECAs. These exemptions delay the requirement to comply with the additional sulfur content reduction pending our continued development and deployment of AEP systems on these ships. We believe that the learning from our existing endeavors, including our newbuild program, as well as our further efforts with regards to this technology will allow us to execute an effective AEP system strategy for our fleet.

As a result of these and other mitigating actions, we believe the cost of complying with the 2015 ECA sulfur emission requirement will not be significant to our results of operations in 2015 and the years following.

By January 1, 2020, the MARPOL regulations will require the worldwide limitations on sulfur content of fuel to be further reduced to 0.5%. If such a reduced limitation is implemented worldwide in 2020 and we have not been able to successfully mitigate the impact with evolving technical solutions, our fuel costs could increase significantly.

We have also taken a number of other steps to improve the overall fuel efficiency of our fleet and, accordingly, reduce our fuel costs. We are targeting a 25% efficiency improvement for our ships on order. In addition, we continue to work to improve the efficiency of our existing fleet, including improvements to the propulsion, machinery, HVAC systems and lighting. The overall impact of these efforts has resulted in a 21% improvement in energy efficiency since 2005 and we believe that our energy consumption per guest is currently the lowest in the cruise industry.

In July 2011, new MARPOL Regulations introduced mandatory measures to reduce greenhouse gas emissions. These include the utilization of an energy efficiency design index (EEDI) for new ships as well as the establishment of an energy efficient management plan for all ships. The EEDI is a performance-based mechanism that requires a certain minimum energy efficiency in new ships. These regulations apply to new vessels commissioned after January 1, 2013. Compliance with these regulations has not had a material effect on our operating costs. In June 2013, the European Commission proposed legislation which would require cruise ship operators using ports in the European Union to monitor and report on the vessels' annual carbon dioxide emissions starting in 2018. We expect that compliance with this regulation, if adopted, will not materially impact our results of operations.



## Labor Regulations

The International Labour Organization, an agency of the United Nations that develops worldwide employment standards, has adopted a new Consolidated Maritime Labour Convention (the “Convention”) which became effective in August 2013. The Convention reflects a broad range of standards and conditions governing all aspects of crew management for ships in international commerce, including additional requirements not previously in effect relating to the health, safety, repatriation, entitlements and status of crewmembers and crew recruitment practices. Each of our ships has received its certification of compliance with the requirements of the Convention. We have not incurred and do not expect to incur material costs related to implementation and ongoing compliance with the Convention.

## Consumer Financial Responsibility Regulations

We are required to obtain certificates from the United States Federal Maritime Commission relating to our ability to satisfy liability in cases of non-performance of obligations to guests, as well as casualty and personal injury. As a condition to obtaining the required certificates, we arrange through our insurers for the provision of surety for three of our ship-operating companies. The required surety amount is currently $15.0 million per operator. However, under amendments approved in February 2013, the required amount will increase to $22.0 million and $30.0 million per operator in 2014 and 2015, respectively. Once fully phased-in in 2015, these surety requirements will be subject to additional consumer price index based adjustments. We do not anticipate that compliance with the new rules will have a material effect on our costs.

We are also required by the United Kingdom, Norway, Finland, and the Baltics to establish our financial responsibility for any liability resulting from the non-performance of our obligations to guests from these jurisdictions. In the United Kingdom we are currently required by the Association of British Travel Agents to provide performance bonds totaling approximately £31.5 million. The Norwegian Travel Guarantee Fund requires us to maintain performance bonds in varying amounts during the course of the year to cover our financial responsibility in Norway, Finland and the Baltics. These amounts ranged from NOK 28 million to NOK 67 million during 2013.

Certain other jurisdictions also require that we establish financial responsibility to our guests resulting from the non-performance of our obligations; however, the related amounts do not have a material effect on our costs.

## Regulations Regarding Protection of Disabled Persons

In June 2013, the U.S. Architectural and Transportation Barriers Compliance Board proposed guidelines for the construction and alteration of passenger vessels to ensure that the vessels are readily accessible to and usable by passengers with disabilities. Once finalized, these guidelines will be used by the U.S. Department of Transportation and U.S. Department of Justice to implement mandatory and enforceable standards for passenger vessels covered by the Americans with Disabilities Act. While we believe our vessels have been designed and outfitted to meet the needs of our guests with disabilities, we cannot at this time accurately predict whether we will be required to make material modifications or incur significant additional expenses given the preliminary status of the proposed guidelines.

## TAXATION OF THE COMPANY

The following is a summary of our principal taxes, exemptions and special regimes. In addition to or instead of income taxation, virtually all jurisdictions where our ships call impose some tax or fee, or both, based on guest headcount, tonnage or some other measure.

We are primarily foreign corporations engaged in the owning and operating of passenger cruise ships in international transportation. During 2013, we also operated other businesses primarily consisting of the Pullmantur land-tour and air business.

## UNITED STATES INCOME TAXATION

The following is a discussion of the application of the United States federal and state income tax laws to us and is based on the current provisions of the United States Internal Revenue Code, Treasury Department regulations, administrative rulings, court decisions and the relevant state tax laws, regulations, rulings and court decisions of the states where we have business operations. All of the foregoing is subject to change, and any such change could affect the accuracy of this discussion.

## Application of Section 883 of the Internal Revenue Code

We and Celebrity Cruises, Inc. are engaged in a trade or business in the United States, and many of our ship-owning subsidiaries, depending upon the itineraries of their ships, receive income from sources within the United States. Additionally, our United Kingdom tonnage tax company, owned by us and Celebrity Cruises, Inc., is a ship-operating company classified as a partnership for United States federal income tax purposes that may earn United States source income. Under Section 883 of the Internal Revenue Code, certain foreign corporations are not subject to United



States federal income or branch profits tax on United States source income derived from or incidental to the international operation of a ship or ships, including income from the leasing of such ships.

A foreign corporation will qualify for the benefits of Section 883 if, in relevant part: (1) the foreign country in which the foreign corporation is organized grants an equivalent exemption to corporations organized in the United States; and (2) the stock of the corporation (or the direct or indirect corporate parent thereof) is “primarily and regularly traded on an established securities market” in the United States or another qualifying country such as Norway. In the opinion of our United States tax counsel, Drinker Biddle & Reath LLP, based on the representations and assumptions set forth in that opinion, we, Celebrity Cruises Inc. and our ship-owning subsidiaries qualify for the benefits of Section 883 because we and each of those subsidiaries are incorporated in Liberia or Malta, which are qualifying countries, and our common stock is primarily and regularly traded on an established securities market in the United States or Norway (i.e., we are a “publicly traded” corporation). If, in the future, (1) Liberia or Malta no longer qualifies as an equivalent exemption jurisdiction, and we do not reincorporate in a jurisdiction that does qualify for the exemption, or (2) we fail to qualify as a publicly traded corporation, we and all of our ship-owning or operating subsidiaries that rely on Section 883 for tax exemption on qualifying income would be subject to United States federal income tax on their United States source shipping income and income from activities incidental thereto.

We believe that most of our income and the income of our ship-owning subsidiaries is derived from or incidental to the international operation of a ship or ships and, therefore, is exempt from taxation under Section 883. Additionally, income earned through a partnership will qualify as income derived from or incidental to the international operation of a ship or ships to the same extent as the income would so qualify if earned directly by the partners. Thus, we believe that United States source income derived from or incidental to the international operation of a ship or ships earned by the United Kingdom tonnage tax company will qualify for exemption under Section 883 to the same extent as if it were earned directly by the owners of the United Kingdom tonnage tax company.

Regulations under Section 883 list activities that are not considered by the Internal Revenue Service to be incidental to the international operation of ships including the sale of air and land transportation, shore excursions and pre- and post-cruise tours. Our income from these activities that is earned from sources within the United States will be subject to United States taxation.

## Taxation in the Absence of an Exemption Under Section 883

If we, the operator of our vessels, Celebrity Cruises Inc., or our ship-owning subsidiaries were to fail to meet the requirements of Section 883 of the Internal Revenue Code, or if the provision was repealed, then, as explained below, such companies would be subject to United States income taxation on a portion of their income derived from or incidental to the international operation of our ships.

Because we and Celebrity Cruises Inc. conduct a trade or business in the United States, we and Celebrity Cruises Inc. would be taxable at regular corporate rates on our separate company taxable income (i.e., without regard to the income of our ship-owning subsidiaries) from United States sources. In addition, if any of our earnings and profits effectively connected with our United States trade or business were withdrawn, or were deemed to have been withdrawn, from our United States trade or business, those withdrawn amounts would be subject to a “branch profits” tax at the rate of 30%. We and Celebrity Cruises Inc. would also be potentially subject to tax on portions of certain interest paid by us at rates of up to 30%.

If Section 883 were not available to our ship-owning subsidiaries, each such subsidiary would be subject to a special 4% tax on its United States source gross transportation income, if any, each year because it does not have a fixed place of business in the United States and its income is derived from the leasing of a ship.

## Other United States Taxation

We and Celebrity Cruises, Inc. earn United States source income from activities not considered incidental to international shipping. The tax on such income is not material to our results of operation for all years presented.

## State Taxation

We, Celebrity Cruises Inc. and certain of our subsidiaries are subject to various United States state income taxes which are generally imposed on each state's portion of the United States source income subject to federal income taxes. Additionally, the state of Alaska subjects an allocated portion of the total income of companies doing business in Alaska and certain other affiliated companies to Alaska corporate state income taxes and also imposes a 33% tax on adjusted gross income from onboard gambling activities conducted in Alaska waters. This did not have a material impact to our results of operations for all years presented.



## MALTESE AND SPANISH INCOME TAX

Our Pullmantur ship owner-operator subsidiaries, which include the owner-operator of CDF Croisières de France's ship, qualify as licensed shipping organizations in Malta. No Maltese income tax is charged on the income derived from shipping activities of a licensed shipping organization. Instead, a licensed shipping organization is liable to pay a tonnage tax based on the net tonnage of the ship or ships registered under the relevant provisions of the Merchant Shipping Act. A company qualifies as a shipping organization if it engages in qualifying activities and it obtains a license from the Registrar-General to enable it to carry on such activities. Qualifying activities include, but are not limited to, the ownership, operation (under charter or otherwise), administration and management of a ship or ships registered as a Maltese ship in terms of the Merchant Shipping Act and the carrying on of all ancillary financial, security and commercial activities in connection therewith.

Our Maltese operations that do not qualify as licensed shipping organizations, which are not considered significant, remain subject to normal Maltese corporate income tax.

Pullmantur has sales and marketing functions, land-based tour operations and air business in Spain. These activities are subject to Spanish taxation. The tax from these operations is not considered significant to our operations. As a result of Pullmantur's increased focus in Latin America and need to have operating management closer to its largest and fastest growing market, Pullmantur has opened a regional head office in Panama. This office has been formed as a "Sedes de Empresas Multinacionales" (SEM) otherwise known in Panama as a Multinational Headquarters company. The SEM regime provides tax advantages for Panamanian entities that only carry out transactions with other entities belonging to their same international group. This new company is expected to be exempt from Panamanian taxation.

## UNITED KINGDOM INCOME TAX

We operate thirteen ships under companies which have elected to be subject to the United Kingdom tonnage tax regime (“U.K. tonnage tax”).

Companies subject to U.K. tonnage tax pay a corporate tax on a notional profit determined with reference to the net tonnage of qualifying vessels. Normal United Kingdom corporate income tax is not chargeable on the relevant shipping profits of a qualifying U.K. tonnage tax company. The requirements for a company to qualify for the U.K. tonnage tax regime include being subject to United Kingdom corporate income tax, operating qualifying ships, which are strategically and commercially managed in the United Kingdom, and fulfilling a seafarer training requirement.

Failure to meet any of these requirements could cause us to lose the benefit of the tonnage tax regime which will have a material effect on our results of operations.

Relevant shipping profits include income from the operation of qualifying ships and from shipping related activities. Our United Kingdom income from non-shipping activities which do not qualify under the U.K. tonnage tax regime and which are not considered significant, remain subject to United Kingdom corporate income tax.

## BRAZILIAN INCOME TAX

Pullmantur and our U.K. tonnage tax company charters certain ships to Brazilian companies for operations in Brazil from November to May. Some of these charters are with unrelated third parties and others are with a Brazilian affiliate. The Brazilian affiliate's earnings are subject to Brazilian taxation which is not considered significant. The charter payments made to the U.K. tonnage tax company and to Pullmantur are exempt from Brazilian income tax under current Brazilian domestic law.

## OTHER TAXATION

We and certain of our subsidiaries are subject to income tax in other jurisdictions on income that does not qualify for exemption or tonnage tax regimes. The tax on such income was not material to our results of operations for all years presented. Our U.K. tonnage tax companies are exempt from some taxation in certain jurisdictions where those companies have business operations under relevant United Kingdom tax treaties. CDF Croisières de France's operations within France are minimal and therefore, its French income taxes are minimal.

## WEBSITE ACCESS TO REPORTS

We make available, free of charge, access to our Annual Reports, all quarterly and current reports and all amendments to those reports, as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission through our website at www.rclinvestor.com. The information contained on our website is not a part of any of these reports and is not incorporated by reference herein.



## EXECUTIVE OFFICERS OF THE COMPANY

As of February 20, 2014, our executive officers are:

<table><tr><td>Name</td><td>Age</td><td>Position</td></tr><tr><td>Richard D. Fain</td><td>66</td><td>Chairman, Chief Executive Officer and Director</td></tr><tr><td>Adam M. Goldstein</td><td>54</td><td>President and Chief Executive Officer, Royal Caribbean International</td></tr><tr><td>Michael W. Bayley</td><td>55</td><td>President and Chief Executive Officer, Celebrity Cruises</td></tr><tr><td>Lawrence Pimentel</td><td>62</td><td>President and Chief Executive Officer, Azamara Club Cruises</td></tr><tr><td>Brian J. Rice \( ^{(1)} \)</td><td>55</td><td>Vice Chairman</td></tr><tr><td>Harri U. Kulovaara</td><td>61</td><td>Executive Vice President, Maritime</td></tr><tr><td>Lisa Lutoff-Perlo</td><td>56</td><td>Executive Vice President, Operations,</td></tr><tr><td>Jason T. Liberty</td><td>38</td><td>Royal Caribbean International Senior Vice President, Chief Financial Officer</td></tr><tr><td>Bradley H. Stein</td><td>58</td><td>Senior Vice President, General Counsel, Chief Compliance Officer</td></tr><tr><td>Henry L. Pujol</td><td>46</td><td>Senior Vice President, Chief Accounting Officer</td></tr></table>

(1) Mr. Rice is retiring in early 2014.

Richard D. Fain has served as a director since 1979 and as our Chairman and Chief Executive Officer since 1988. Mr. Fain has been involved in the shipping industry for over 35 years.

Adam M. Goldstein has served as President of Royal Caribbean International since February 2005 and as its President and Chief Executive Officer since September 2007. Mr. Goldstein has been employed with Royal Caribbean since 1988 in a variety of positions, including Executive Vice President, Brand Operations of Royal Caribbean International, Senior Vice President, Total Guest Satisfaction and Senior Vice President, Marketing. Mr. Goldstein served as National Chair of the United States Travel Association (formerly, Travel Industry Association of America) in 2001.

Michael W. Bayley has served as President and Chief Executive Officer of Celebrity Cruises since August 2012. Mr. Bayley has been employed by Royal Caribbean for over 30 years, having started as a Purser onboard one of the Company's ships. He has served in a number of roles including, most recently, as Executive Vice President, Operations from February 2012 until August 2012. Other positions Mr. Bayley has held include Executive Vice President, International from May 2010 until February 2012; Senior Vice President, International from December 2007 to May 2010; Senior Vice President, Hotel Operations for Royal Caribbean International; and Chairman and Managing Director of Island Cruises.
Lawrence Pimentel has served as President and Chief Executive Officer of Azamara Club Cruises since July 2009. From 2001 until January 2009, Mr. Pimentel was President, Chief Executive Officer, Director and co-owner of SeaDream Yacht Club, a privately held luxury cruise line located in Miami, Florida with two yacht-style ships that sailed primarily in the Caribbean and Mediterranean. From April 1991 to February 2001, Mr. Pimentel was President and Chief Executive Officer of Carnival Corp.'s Seabourn Cruise Line and from May 1998 to February 2001, he was President and Chief Executive Officer of Carnival Corp.'s Cunard Line.

Brian J. Rice has served as Vice Chairman since September 2012. In this capacity, Mr. Rice oversees Royal Caribbean's finance, supply chain, strategy and information technology functions. Mr. Rice previously served as our Chief Financial Officer from November 2006 through May 2013, when these responsibilities were transitioned in preparation for Mr. Rice's retirement in early 2014. Mr. Rice has been employed with Royal Caribbean since 1989 in a variety of positions including Executive Vice President, Revenue Performance.

Harri U. Kulovaara has served as Executive Vice President, Maritime since January 2005. Mr. Kulovaara is responsible for fleet design and newbuild operations. Mr. Kulovaara also chairs our Maritime Safety Advisory Board. Mr. Kulovaara has been employed with Royal Caribbean since 1995 in a variety of positions, including Senior Vice President, Marine Operations, and Senior Vice President, Quality Assurance. Mr. Kulovaara is a naval architect and engineer.

Lisa Lutoff-Perlo has served as Executive Vice President, Operations for Royal Caribbean International since September 2012. Ms. Lutoff-Perlo has been employed with the Company since 1985 in a variety of positions within both Celebrity Cruises and Royal Caribbean International. She started at Royal Caribbean International as District Sales Manager for New England and more recently, from August 2008 to August 2012, she was responsible for Celebrity Cruises' entire hotel operation. In her role as Executive Vice President of Operations, Ms. Lutoff-Perlo is responsible for all of Royal Caribbean International's hotel, marine and port operations.

Jason T. Liberty has been employed by the Company since 2005 and has served as Senior Vice President and Chief Financial Officer since May 2013. Mr. Liberty previously served as Senior Vice President, Strategy and Finance from September 2012 through May 2013, overseeing the Company's Corporate and Strategic Planning, Treasury, Investor Relations and Deployment functions. Prior to this, Mr. Liberty served, from 2010 through 2012, as Vice President of Corporate and Revenue Planning and, from 2008 to 2010, as Vice President of Corporate and Strategic Planning. Before



joining Royal Caribbean, Mr. Liberty was a Senior Manager at the international public accounting firm of KPMG LLP.

Bradley H. Stein has served as General Counsel of the Company since 2006. He has also served as Senior Vice President and Chief Compliance Officer of the Company since February 2009 and February 2011, respectively. Mr. Stein has been with Royal Caribbean since 1992. Before joining Royal Caribbean, Mr. Stein worked in private practice in New York and Miami.

Henry L. Pujol has served as Senior Vice President, Chief Accounting Officer of the Company since May 2013. Mr. Pujol originally joined Royal Caribbean in 2004 as Assistant Controller and was promoted to Corporate Controller in May 2007. Before joining Royal Caribbean, Mr. Pujol was a Senior Manager at the international public accounting firm of KPMG LLP.

## ITEM 1A. RISK FACTORS

The risk factors set forth below and elsewhere in this Annual Report on Form 10-K are important factors that could cause actual results to differ from expected or historical results. It is not possible to predict or identify all such risks. The risks described below are only those known risks relating to our operations and financial condition that we consider material. There may be additional risks that we consider not to be material, or which are not known, and any of these risks could have the effects set forth below. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a cautionary note regarding forward-looking statements.

Adverse worldwide economic, geopolitical or other conditions could reduce the demand for cruises and adversely impact our operating results, cash flows and financial condition including potentially impairing the value of our ships, goodwill and other assets.

The demand for cruises is affected by international, national and local economic and geopolitical conditions. In recent years, we have been faced with very challenging global economic conditions, which have adversely affected vacationers' discretionary income and consumer confidence. This, in turn, resulted in cruise booking slowdowns, decreased cruise prices and lower onboard revenues for us and for others in the cruise industry as compared to more robust economic times. Although the cruise industry continued to recover in 2013, recovery remains slow in certain key markets, including Southern Europe, and has been hindered in some other markets by ongoing economic instability. We cannot predict with any certainty whether demand for cruises will continue to improve or the rate of such improvement. In addition, any significant deterioration of global economic conditions could result in a prolonged period of booking slowdowns, depressed cruise prices and reduced onboard revenues. Demand for our cruises is also influenced by geopolitical events. Unfavorable conditions, such as cross-border conflicts, civil unrest and governmental changes, especially in regions with popular ports of call, can undermine consumer demand and/or pricing for itineraries featuring these ports.

Continued unrest and economic instability could materially adversely impact our operating results, cash flows and financial condition including potentially impairing the value of our ships, goodwill and other assets. During 2012, we recognized material impairment related charges associated with our Pullmantur brand. Despite these charges, if the economies where Pullmantur operates perform worse than contemplated in our discounted cash flow model, or if there are relatively modest changes to the projected future cash flows used in the impairment analyses, especially in Net Yields or if certain transfers of vessels from our other cruise brands to the Pullmantur fleet do not take place, it is reasonably possible that an additional impairment charge of the Pullmantur reporting unit's goodwill and trademarks and trade names may be required.

We may not be able to obtain sufficient financing or capital for our needs or may not be able to do so on terms that are acceptable or consistent with our expectations.

To fund our capital expenditures and scheduled debt payments, we have historically relied on a combination of cash flows provided by operations, drawdowns under available credit facilities, the incurrence of additional indebtedness and the sale of equity or debt securities in private or public securities markets. Any circumstance or event which leads to a decrease in consumer cruise spending, such as worsening global economic conditions or significant incidents impacting the cruise industry, could negatively affect our operating cash flows. See “—Adverse worldwide economic, geopolitical or other conditions...” and “—Incidents or adverse publicity concerning the cruise vacation industry...” for more information.

Although we believe we can access sufficient liquidity to fund our operations and obligations as expected, there can be no assurances to that effect. Our ability to access additional funding as and when needed, our ability to timely refinance and/or replace our outstanding debt securities and credit facilities on acceptable terms, and our cost of funding will depend upon numerous factors including but not limited to the vibrancy of the financial markets, our financial performance and credit ratings and the performance of our industry in general.



Our inability to satisfy the covenants required by our credit facilities could adversely impact our liquidity. Our debt agreements contain covenants, including covenants restricting our ability to take certain actions and financial covenants that require us to maintain minimum net worth and fixed charge coverage ratios and limit our net debt-to-capital ratio. Our ability to comply with the terms of our outstanding facilities may be affected by general economic conditions, industry conditions and other events, some of which may be beyond our control. In addition, our ability to make borrowings under our available credit facilities is subject to the absence of material adverse changes in our business. Our ability to maintain our credit facilities may also be impacted by changes in our ownership base. More specifically, we may be required to prepay a majority of our debt facilities if (i) any person or entity other than A. Wilhelmsen AS. and Cruise Associates and their respective affiliates (the "Applicable Group") acquires ownership of more than 33% of our common stock and the Applicable Group owns less of our common stock than such person or (ii) subject to certain exceptions, during any 24-month period, a majority of the Board is no longer comprised of individuals who were members of the Board on the first day of such period. Certain of our outstanding debt securities also contain change of control provisions that would be triggered by the acquisition of greater than 50% of our common stock by a person other than a member of the Applicable Group coupled with a ratings downgrade.

Our failure to comply with the terms of our debt facilities could result in an event of default. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, our outstanding debt and derivative contract payables could become due and/or terminated. We cannot provide assurances that we would have sufficient liquidity to repay or the ability to refinance the borrowings under any of the credit facilities or settle other outstanding contracts if such amounts were accelerated upon an event of default.

In addition, under several of our agreements with credit card processors that accept credit cards for the sale of cruises and other services, the credit card processor may hold back a reserve from our credit card receivables following the occurrence of certain events, including a default under our major credit facilities. As of December 31, 2013, we were not required to maintain any reserve under such agreements.
Incidents or adverse publicity concerning the cruise vacation industry, unusual weather conditions and other natural disasters or disruptions could affect our reputation as well as impact our sales and results of operations.

The operation of cruise ships, airplanes, land tours, port facilities and shore excursions involves the risk of accidents, illnesses, mechanical failures, environmental incidents and other incidents which may bring into question safety, health, security and vacation satisfaction which could negatively impact our reputation. Incidents involving cruise ships, and, in particular the safety and security of guests and crew, media coverage thereof, as well as adverse media publicity concerning the cruise vacation industry have impacted and could in the future impact demand for our cruises and pricing in the industry. The considerable expansion in the use of social media over recent years has compounded the potential scope of the negative publicity that could be generated by those incidents. If any such incident occurs during a time of high seasonal demand, the effect could disproportionately impact our results of operations for the year. In addition, incidents involving cruise ships may result in additional costs to our business, increasing government or other regulatory oversight and, in the case of incidents involving our ships, potential litigation.

Our cruise ships and port facilities may also be adversely impacted by unusual weather patterns or natural disasters or disruptions, such as hurricanes and earthquakes. It is possible that we could be forced to alter itineraries or cancel a cruise or a series of cruises due to these or other factors, which would have an adverse effect on our sales and profitability. In addition, these and any other events which impact the travel industry more generally may negatively impact our ability to deliver guests or crew to our cruises and/or interrupt our ability to obtain services and goods from key vendors in our supply chain. Any of the foregoing could have an adverse impact on our results of operations and on industry performance.

The impact of disruptions in the global financial markets may affect the ability of our counterparties and others to perform their obligations to us.

The financial crisis of 2008, including failures of financial service and insurance companies and the related liquidity crisis, disrupted the capital and credit markets. A recurrence of these or similar disruptions could cause our counterparties and others to breach their obligations to us under our contracts with them. This could include failures of banks or other financial service companies to fund required borrowings under our loan agreements or to pay us amounts that may become due under our derivative contracts for hedging of fuel prices, interest rates and foreign currencies or other



agreements. If any of the foregoing occurs it may have a negative impact on our cash flows, including our ability to meet our obligations, our results of operations and our financial condition.

An increase in capacity worldwide or excess capacity in a particular market could adversely impact our cruise sales and/or pricing.

Although our ships can be redeployed, cruise sales and/or pricing may be impacted both by the introduction of new ships into the marketplace and by deployment decisions of ourselves and our competitors. A total of 26 new ships with approximately 71,000 berths are on order for delivery through 2018 in the cruise industry. The further growth in capacity from these new ships and future orders, without an increase in the cruise industry's share of the vacation market, could depress cruise prices and impede our ability to achieve yield improvement. In addition, to the extent that we or our competitors deploy ships to a particular itinerary and the resulting capacity in that region exceeds the demand, we may lower pricing and profitability may be lower than anticipated. Any of the foregoing could have an adverse impact on our results of operations, cash flows and financial condition including potentially impairing the value of our ships, goodwill and other assets.

If we are unable to appropriately balance our cost management strategies with our goal of satisfying guest expectations, it may adversely impact our business success.

Our goals call for us to provide high quality products and deliver high quality services. There can be no assurances that we can successfully balance these goals with our cost management strategies.

We may lose business to competitors throughout the vacation market.

We operate in the vacation market and cruising is one of many alternatives for people choosing a vacation. We therefore risk losing business not only to other cruise lines, but also to other vacation operators, which provide other leisure options including hotels, resorts and package holidays and tours.

We face significant competition from other cruise lines on the basis of cruise pricing, travel agent preference and also in terms of the nature of ships and services we offer to guests. Our principal competitors within the cruise vacation industry include Carnival Corporation & plc, which owns, among others, Aida Cruises, Carnival Cruise Lines, Costa Cruises, Cunard Line, Holland America Line, Iberocruceros, P&O Cruises and Princess Cruises; Disney Cruise Line; MSC Cruises; Norwegian Cruise Line and Oceania Cruises.
In the event that we do not compete effectively with other vacation alternatives and cruise companies, our results of operations and financial position could be adversely affected.

Fears of terrorist and pirate attacks, war, and other hostilities and the spread of contagious diseases could have a negative impact on our results of operations. Events such as terrorist and pirate attacks, war, and other hostilities and the resulting political instability, travel restrictions, the spread of contagious diseases and concerns over safety, health and security aspects of traveling or the fear of any of the foregoing have had, and could have in the future, a significant adverse impact on demand and pricing in the travel and vacation industry. In view of our global operations, we have become susceptible to a wider range of adverse events.

Fluctuations in foreign currency exchange rates could affect our financial results.

We earn revenues, pay expenses, recognize assets and incur liabilities in currencies other than the U.S. dollar, including, among others, the British pound sterling, the Canadian dollar, the Euro, the Australian dollar and the Brazilian real. In 2013, we derived approximately 48% of revenues from operations outside the United States. Because our consolidated financial statements are presented in U.S. dollars, we must convert revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, absent offsetting changes in other foreign currencies, increases or decreases in the value of the U.S. dollar against other major currencies will affect our revenues, net income and the value of balance sheet items denominated in foreign currencies. We use derivative financial instruments to mitigate our net balance sheet exposure to currency exchange rate fluctuations. However, there can be no assurances that fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies, would not materially affect our financial results.

In addition, we have ship construction contracts which are denominated in Euros. While we have entered into Euro-denominated forward contracts and collar options to manage a portion of the currency risk associated with these ship construction contracts, we are exposed to fluctuations in the Euro exchange rate for the portion of the ship construction contracts that has not been hedged. Additionally, if the shipyard is unable to perform under the related ship construction contract, any foreign currency hedges that were entered into to manage the currency risk would need to be terminated. Termination of these contracts could result in a significant loss.



Environmental, labor, health and safety, financial responsibility and other maritime regulations could affect operations and increase operating costs. The United States and various state and foreign government or regulatory agencies have enacted or are considering new environmental regulations or policies, such as requiring the use of low sulfur fuels, increasing fuel efficiency requirements, further restricting emissions, or other initiatives to limit greenhouse gas emissions that could increase our cost for fuel, cause us to incur significant expenses to purchase and/or develop new equipment and adversely impact the cruise vacation industry. Some environmental groups have also lobbied for more stringent regulation of cruise ships and have generated negative publicity about the cruise vacation industry and its environmental impact. See Item 1. Business-Regulation-Environmental Regulations. An increase in fuel prices not only impacts our fuel costs, but also some of our other expenses, such as crew travel, freight and commodity prices.

In addition, we are subject to various international, national, state and local laws, regulations and treaties that govern, among other things, safety standards applicable to our ships, treatment of disabled persons, health and sanitary standards applicable to our guests, security standards on board our ships and at the ship/port interface areas, and financial responsibilities to our guests. These issues are, and we believe will continue to be, an area of focus by the relevant authorities throughout the world, especially in light of several recent incidents involving cruise ships. This could result in the enactment of more stringent regulation of cruise ships that could subject us to increasing compliance costs in the future.

Conducting business globally may result in increased costs and other risks.

We operate our business globally. Operating internationally exposes us to a number of risks, including unstable local economic conditions, volatile local political conditions, potential changes in duties and taxes, including changing interpretations of existing tax laws and regulations, required compliance with additional laws and policies affecting cruising, vacation or maritime businesses or governing the operations of foreign-based companies, currency fluctuations, interest rate movements, difficulties in operating under local business environments, U.S. and global anti-bribery laws or regulations, imposition of trade barriers and restrictions on repatriation of earnings. If we are unable to address these risks adequately, our financial position and results of operations could be adversely affected, including potentially impairing the value of our ships, goodwill and other assets.
Operating globally also exposes us to numerous and sometimes conflicting legal and regulatory requirements. In many parts of the world, including countries in which we operate, practices in the local business communities might not conform to international business standards. We must adhere to policies designed to promote legal and regulatory compliance as well as applicable laws and regulations. However, we might not be successful in ensuring that our employees, agents, representatives and other third parties with which we associate throughout the world properly adhere to them.

Failure by us, our employees or any of these third parties to adhere to our policies or applicable laws or regulations could result in penalties, sanctions, damage to our reputation and related costs which in turn could negatively affect our results of operations and cash flows.

Our attempts to expand our business into new markets may not be successful.

While our historical focus has been to serve the North American cruise market, we have expanded our focus to increase our international guest sourcing, including sourcing from the Latin American, Asian and Australian markets. In addition, in early 2014, Pullmantur opened a regional head office in Panama. Expansion into new markets requires significant levels of investment. There can be no assurance that these markets will develop as anticipated or that we will have success in these markets, and if we do not, we may be unable to recover our investment, which could adversely impact our business, financial condition and results of operations, including potentially impairing the value of our goodwill.

Ship construction, repair or revitalization delays or mechanical faults may result in cancellation of cruises or unscheduled drydocks and repairs and thus adversely affect our results of operations.

We depend on shipyards to construct, repair and revitalize our cruise ships on a timely basis and in good working order. The sophisticated nature of building a ship involves risks. Delays in ship construction or revitalization or mechanical faults have in the past and may in the future result in delays or cancellation of cruises or necessitate unscheduled drydocks and repairs of ships. These events and any related adverse publicity could result in lost revenue, increased operating expenses, or both, and thus adversely affect our results of operations.



Shipyards and their subcontractors may experience financial difficulties which could cause or result in delay, ship cancellations, our inability to procure new capacity in a timely fashion or increases in ship-building costs that could adversely affect our results of operations.

We rely on shipyards to construct, repair and revitalize our ships. Financial difficulties, liquidations or closures suffered by these shipyards and/or their subcontractors may impact the timely delivery or costs of new ships or the ability of shipyards to repair and revitalize our fleet in accordance with our needs or expectations. The shipyard that is building the two newbuilds for our TUI Cruises joint venture continues to experience financial difficulties. This situation could have a material impact on the ability of the shipyard to deliver these ships in accordance with the terms of the contract, the costs borne by TUI Cruises associated with these ships and/or the additional financial support that we may need to provide to TUI Cruises (e.g., parent guarantees, loans, additional equity contributions) or that TUI Cruises may need to provide to the shipyard to seek to ensure timely completion.

In addition, there are a limited number of shipyards with the capability and capacity to build our new ships and, accordingly, closures or consolidation in the cruise shipyard industry could impact our ability to construct new ships when and as planned and/or could result in stronger bargaining power on the part of the shipyards and thus higher prices for our future ship orders. Delivery delays and canceled deliveries can adversely affect our results of operations, as can any constraints on our ability to build, repair and maintain our ships on a timely basis.

Our operating costs, especially fuel expenditures, could increase due to market forces and economic or geo-political factors beyond our control. Expenditures for fuel represent a significant cost of operating our business. If fuel prices rise significantly in a short period of time, we may be unable to increase fares or other fees sufficiently to offset fully our increased fuel costs. We routinely hedge a portion of our future fuel requirements to protect against rising fuel costs. However, there can be no assurance that our hedge contracts will provide a sufficient level of protection against increased fuel costs or that our counterparties will be able to perform under our hedge contracts, such as in the case of a counterparty's bankruptcy. Further volatility in fuel prices or disruptions in fuel supplies could have a material adverse effect on our results of operations, financial condition and liquidity.

Our other operating costs, including food, payroll, airfare, taxes, insurance and security costs are all subject to increases due to market forces and economic or political conditions or other factors beyond our control. Increases in these operating costs could adversely affect our profitability.

Unavailability of ports of call may adversely affect our results of operations.

We believe that port destinations are a major reason why guests choose to go on a particular cruise or on a cruise vacation. The availability of ports is affected by a number of factors, including existing capacity constraints, constraints related to the size of certain ships, security concerns, adverse weather conditions and natural disasters, financial limitations on port development, exclusivity arrangements that ports may have with our competitors, local governmental regulations and local community concerns about port development and other adverse impacts on their communities from additional tourists. In addition, rising fuel costs may adversely impact the destinations on certain of our itineraries. Any limitations on the availability or feasibility of our ports of call or on the availability of shore excursion and other service providers at such ports could adversely affect our results of operations.

Price increases for commercial airline service for our guests or major changes or reduction in commercial airline service and/or availability could adversely impact the demand for cruises and undermine our ability to provide reasonably priced vacation packages to our guests.

Many of our guests depend on scheduled commercial airline services to transport them to or from the ports where our cruises embark or disembark. Increases in the price of airfare would increase the overall price of the cruise vacation to our guests which may adversely impact demand for our cruises. In addition, changes in the availability of commercial airline services could adversely affect our guests' ability to obtain airfare as well as our ability to fly our guests to or from our cruise ships which could adversely affect our results of operations.

Our reliance on travel agencies to sell and market our cruises exposes us to certain risks which, if realized, could adversely impact our business.

Because we rely on travel agencies to generate the majority of bookings for our ships, we must ensure that our commission rates and incentive structures remain competitive. If we fail to offer competitive compensation packages, these agencies may be incentivized to sell cruises offered by our competitors to our detriment, which could adversely impact our operating results. In addition, the travel agent industry is sensitive to economic conditions that impact discretionary income. Significant disruptions, especially disruptions impacting those agencies that sell a high volume of our business, or contractions in the industry could reduce the number of travel agencies available for us to market and sell our cruises, which



could have an adverse impact on our financial condition and results of operations.

Disruptions in our shoreside operations or our information systems may adversely affect our results of operations.

Our principal executive office and principal shoreside operations are located at the Port of Miami, Florida and we have shoreside offices throughout the world. Actual or threatened natural disasters (e.g., hurricanes, earthquakes, tornadoes, fires, floods) or similar events in these locations may have a material impact on our business continuity, reputation and results of operations. In addition, substantial or repeated information systems failures, computer viruses or cyber-attacks impacting our shoreside or shipboard operations could adversely impact our business. We do not generally carry business interruption insurance for our shoreside operations or our information systems. As such, any losses or damages incurred by us could have an adverse impact on our results of operations.

Failure to develop the value of our brands and differentiate our products could adversely affect our results of operations.

Our success depends on the strength and continued development of our cruise brands and on the effectiveness of our brand strategies. Failure to protect and differentiate our brands from competitors throughout the vacation market could adversely affect our results of operations.

The loss of key personnel, our inability to recruit or retain qualified personnel, or disruptions among our shipboard personnel due to strained employee relations could adversely affect our results of operations. Our success depends, in large part, on the skills and contributions of key executives and other employees, and on our ability to recruit and retain high quality personnel. We must continue to sufficiently recruit, retain, train and motivate our employees to maintain our current business and support our projected growth. Furthermore, as of December 31, 2013, 80% of our shipboard employees were covered by collective bargaining agreements. A dispute under our collective bargaining agreements could result in a work stoppage of those employees covered by the agreements. A loss of key employees or disruptions among our personnel could adversely affect our results of operations.

Business activities that involve our co-investment with third parties may subject us to additional risks. Partnerships, joint ventures, and other business structures involving our co-investment with third parties, such as our joint venture to operate TUI Cruises, generally include some form of shared control over the operations of the business and create additional risks, including the possibility that other investors in such ventures could become bankrupt or otherwise lack the financial resources to meet their obligations, or could have or develop business interests, policies or objectives that are inconsistent with ours. In addition, actions by another investor may present additional risks of operational difficulties or reputational or legal concerns. These or other issues related to our co-investment with third parties could adversely impact our operations.

We rely on third-party providers of various services integral to the operations of our businesses. These third parties may act in ways that could harm our business. In order to achieve cost and operational efficiencies, we outsource to third-party vendors certain services that are integral to the operations of our global businesses, such as our onboard concessionaires, certain of our call center operations and operation of a large part of our information technology systems. We are subject to the risk that certain decisions are subject to the control of our third-party service providers and that these decisions may adversely affect our activities. A failure to adequately monitor a third-party service provider’s compliance with a service level agreement or regulatory or legal requirements could result in significant economic and reputational harm to us. There is also a risk the confidentiality, privacy and/or security of data held by third parties or communicated over third-party networks or platforms could become compromised.

A failure to keep pace with developments in technology or technological obsolescence could impair our operations or competitive position.

Our business continues to demand the use of sophisticated technology and systems. These technologies and systems must be refined, updated, and/or replaced with more advanced systems in order to continue to meet our customers' demands and expectations. If we are unable to do so in a timely manner or within reasonable cost parameters or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer. We also may not achieve the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could impair our operating results.

We may be exposed to risks and costs associated with protecting the integrity and security of our guests' and employees' personal information.

We are subject to various risks associated with the collection, handling, storage and transmission of sensitive information, including risks related to compliance with applicable laws and other contractual obligations, as well as the risk that our systems collecting such information could be compromised. In the course of doing business, we collect large volumes of internal and customer data, including personally identifiable information for various business purposes.



If we fail to maintain compliance with the various applicable data collection and privacy laws or with credit card industry standards or other applicable data security standards, we could be exposed to fines, penalties, restrictions, litigation or other expenses, and our business could be adversely impacted. In addition, even if we are fully compliant with legal standards and contractual requirements, we still may not be able to prevent security breaches involving sensitive data. Any breach, theft, loss, or fraudulent use of guest, employee or company data could cause consumers to lose confidence in the security of our information technology systems and choose not to purchase from us and expose us to risks of data loss, business disruption, litigation and other liability, any of which could adversely affect our business.

A change in our tax status under the United States Internal Revenue Code, or other jurisdictions, may have adverse effects on our income.
We and a number of our subsidiaries are foreign corporations that derive income from a United States trade or business and/or from sources within the United States. Drinker Biddle & Reath LLP, our United States tax counsel, has delivered to us an opinion, based on certain representations and assumptions set forth in it, to the effect that this income, to the extent derived from or incidental to the international operation of a ship or ships, is exempt from United States federal income tax pursuant to Section 883 of the Internal Revenue Code. We believe that most of our income (including that of our subsidiaries) is derived from or incidental to the international operation of a ship or ships.

Our ability to rely on Section 883 could change in the future. For example, U.S. tax legislation has been proposed that would eliminate the availability of Section 883 to us and would thereby cause a portion of our international shipping income to be subject to tax in the United States. Moreover, changes could occur in the future with respect to the identity, residence or holdings of our direct or indirect shareholders, trading volume or trading frequency of our shares, or relevant foreign tax laws of Liberia or Malta such that they no longer qualify as equivalent exemption jurisdictions, that could affect our eligibility for the Section 883 exemption. Accordingly, there can be no assurance that we will continue to be exempt from United States income tax on United States source shipping income in the future. If we were not entitled to the benefit of Section 883, we and our subsidiaries would be subject to United States taxation on a portion of the income derived from or incidental to the international operation of our ships, which would reduce our net income.

Additionally, portions of our business are operated by companies that are within tonnage tax regimes of the U.K. and Malta. Further, some of the operations of these companies are conducted in jurisdictions where we rely on tax treaties to provide exemption from taxation. To the extent the tonnage tax laws of these countries change or we do not continue to meet the applicable qualification requirements or if tax treaties are changed or revoked, we may be required to pay higher income tax in these jurisdictions, adversely impacting our results of operations.

As budgetary constraints continue to adversely impact the jurisdictions in which we operate, increases in income tax regulations or tax reform affecting our operations may be imposed.

We are not a United States corporation and our shareholders may be subject to the uncertainties of a foreign legal system in protecting their interests.

Our corporate affairs are governed by our Articles of Incorporation and By-Laws and by the Business Corporation Act of Liberia. The provisions of the Business Corporation Act of Liberia resemble provisions of the corporation laws of a number of states in the United States. However, while most states have a fairly well developed body of case law interpreting their respective corporate statutes, there are very few judicial cases in Liberia interpreting the Business Corporation Act of Liberia. As such, the rights and fiduciary responsibilities of directors under Liberian law are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain United States jurisdictions. For example, the right of shareholders to bring a derivative action in Liberian courts may be more limited than in United States jurisdictions. There may also be practical difficulties for shareholders attempting to bring suit in Liberia and Liberian courts may or may not recognize and enforce foreign judgments. Thus, our public shareholders may have more difficulty in protecting their interests with respect to actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.

Litigation, enforcement actions, fines or penalties could adversely impact our financial condition or results of operations and/or damage our reputation. Our business is subject to various United States and international laws and regulations that could lead to enforcement actions, fines, civil or criminal penalties or the assertion of litigation claims and damages. In addition, improper conduct by our employees, agents or joint venture partners could damage our reputation and/or lead to litigation or legal proceedings that could result in civil or criminal penalties, including substantial monetary fines. In certain circumstances it may not be economical to defend against such matters and/or a legal strategy may not ultimately



result in us prevailing in a matter. Such events could lead to an adverse impact on our financial condition or results of operations.

Provisions of our Articles of Incorporation, By-Laws and Liberian law could inhibit others from acquiring us, prevent a change of control, and may prevent efforts by our shareholders to change our management. Certain provisions of our Articles of Incorporation and By-Laws and Liberian law may inhibit third parties from effectuating a change of control of the Company without Board approval which could result in the entrenchment of current management. These include provisions in our Articles of Incorporation that prevent third parties, other than A. Wilhelmsen AS, and Cruise Associates, from acquiring beneficial ownership of more than 4.9% of our outstanding shares without the consent of our Board of Directors.

## ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

## ITEM 2. PROPERTIES

Information about our cruise ships, including their size and primary areas of operation, may be found within the Operating Strategies—Fleet revitalization, maintenance and expansion section and the Operations—Cruise Ships and Itineraries section in Item 1. Business. Information regarding our cruise ships under construction, estimated expenditures and financing may be found within the Future Capital Commitments and Funding Needs and Sources sections of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our principal executive office and principal shoreside operations are located at the Port of Miami, Florida where we lease three office buildings totaling approximately 361,800 square feet from Miami-Dade County, Florida, under long-term leases with current terms expiring in 2021. We lease two office buildings in the United Kingdom totaling approximately 57,000 square feet used to conduct our operations in the United Kingdom. In connection with the consolidation of our global sales structure, we will be reducing our office space in the UK and will lease only one building with approximately 24,000 square feet. We also lease a number of international offices throughout Europe, Asia, Mexico, South America and Australia to administer our brand operations globally.

We lease an office building in Springfield, Oregon totaling approximately 163,000 square feet, which is used as a call center for reservations. In addition, we own two office buildings totaling approximately 95,000 square feet in Wichita, Kansas, which are used as call centers for reservations and customer service. We lease two buildings in Miramar, Florida totaling approximately 178,000 square feet. One building is used primarily as office space and the other building is used as a call center for reservations. We also lease our logistics center in Weston, Florida totaling approximately 267,000 square feet.

We believe that our facilities are adequate for our current needs and that we are capable of obtaining additional facilities as necessary.

We also operate two private destinations which we utilize as a port-of-call on certain of our itineraries: (i) an island we own in the Bahamas which we call CocoCay; and (ii) Labadee, a secluded peninsula we lease on the north coast of Haiti.

## ITEM 3. LEGAL PROCEEDINGS

A class action complaint was filed in June 2011 against Royal Caribbean Cruises Ltd. in the United States District Court for the Southern District of Florida on behalf of a purported class of stateroom attendants employed onboard Royal Caribbean International cruise vessels alleging that they were required to pay other crew members to help with their duties in violation of the U.S. Seaman's Wage Act. Plaintiffs seek judgments for damages, wage penalties and interest in an indeterminate amount. In May 2012, the Court granted our motion to dismiss the complaint on the basis that the applicable collective bargaining agreement requires any such claims to be arbitrated. The United States Court of Appeals, 11th Circuit affirmed the Court's dismissal and denied Plaintiff's petition for re-hearing and re-hearing en banc. We believe the underlying claims made against us are without merit, and we intend to vigorously defend ourselves against them. Because of the inherent uncertainty as to the outcome of this proceeding, we are unable at this time to estimate the possible impact of this matter on us.

We are routinely involved in other claims typical within the cruise vacation industry. The majority of these claims are covered by insurance. We believe the outcome of such claims, net of expected insurance recoveries, will not have a material adverse impact on our financial condition or results of operations and cash flows.

## ITEM 4. MINE SAFETY DISCLOSURES

None.



## PART II

## ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

## MARKET INFORMATION

Our common stock is listed on the New York Stock Exchange (“NYSE”) and the Oslo Stock Exchange (“OSE”) under the symbol “RCL”. The table below sets forth the high and low sales prices of our common stock as reported by the NYSE and the OSE for the two most recent years by quarter:

<table><tr><td rowspan="2"></td><td colspan="2">NYSE Common Stock</td><td colspan="2">OSE Common Stock \( ^{(1)} \)</td></tr><tr><td>High</td><td>Low</td><td>High</td><td>Low</td></tr><tr><td>2013</td><td></td><td></td><td></td><td></td></tr><tr><td>Fourth Quarter</td><td>47.66</td><td>35.97</td><td>292.60</td><td>216.10</td></tr><tr><td>Third Quarter</td><td>40.71</td><td>33.31</td><td>241.80</td><td>201.40</td></tr><tr><td>Second Quarter</td><td>38.62</td><td>31.35</td><td>224.90</td><td>178.00</td></tr><tr><td>First Quarter</td><td>38.56</td><td>31.72</td><td>213.50</td><td>184.10</td></tr><tr><td>2012</td><td></td><td></td><td></td><td></td></tr><tr><td>Fourth Quarter</td><td>36.18</td><td>30.26</td><td>202.50</td><td>169.70</td></tr><tr><td>Third Quarter</td><td>31.97</td><td>22.45</td><td>182.90</td><td>134.50</td></tr><tr><td>Second Quarter</td><td>29.45</td><td>22.12</td><td>167.60</td><td>134.60</td></tr><tr><td>First Quarter</td><td>31.96</td><td>25.40</td><td>183.70</td><td>149.30</td></tr></table>

(1) Denominated in Norwegian kroner, as listed in the price history database available at www.oslobors.no.

## HOLDERS

As of February 13, 2014, there were 1,047 record holders of our common stock. Since certain of our shares are held by brokers and other institutions on behalf of shareholders, the foregoing number is not representative of the number of beneficial owners.

## DIVIDENDS

In 2012, we declared cash dividends on our common stock of $0.10 per share during the first and second quarters of 2012. We increased the dividend amount to $0.12 per share for the dividends declared in the third and fourth quarters of 2012 and the first and second quarters of 2013. The dividend amount was increased to $0.25 per share for the dividends declared in the third and fourth quarters of 2013.

Holders of our common stock have an equal right to share in our profits in the form of dividends when and if declared by our Board of Directors out of funds legally available. Holders of our common stock have no rights to any sinking fund.

There are no exchange control restrictions on remittances of dividends on our common stock since (1) we are and intend to maintain our status as a nonresident Liberian entity under the Revenue Code of Liberia (2000) and the regulations thereunder, and (2) our ship-owning subsidiaries are not now engaged, and are not in the future expected to engage, in any business in Liberia, including voyages exclusively within the territorial waters of the Republic of Liberia. Under current Liberian law, no Liberian taxes or withholding will be imposed on payments to holders of our securities other than to a holder that is a resident Liberian entity or a resident individual or an individual or entity subject to taxation in Liberia as a result of having a permanent establishment within the meaning of the Revenue Code of Liberia (2000) in Liberia.

The declaration of dividends shall at all times be subject to the final determination of our Board of Directors that a dividend is prudent at that time in consideration of the needs of the business.



## PART II

## PERFORMANCE GRAPH

The following graph compares the total return, assuming reinvestment of dividends, on an investment in the Company, based on performance of the Company’s common stock, with the total return of the Standard & Poor’s 500 Composite Stock Index and the Dow Jones United States Travel and Leisure Index for a five year period by measuring the changes in common stock prices from December 31, 2008 to December 31, 2013.



<table><tr><td></td><td>12/08</td><td>12/09</td><td>12/10</td><td>12/11</td><td>12/12</td><td>12/13</td></tr><tr><td>Royal Caribbean Cruises Ltd.</td><td>$100.00</td><td>$183.85</td><td>$341.82</td><td>$181.64</td><td>$253.12</td><td>$359.70</td></tr><tr><td>S&amp;P 500</td><td>100.00</td><td>126.46</td><td>145.51</td><td>148.59</td><td>172.37</td><td>228.19</td></tr><tr><td>Dow Jones US Travel &amp; Leisure</td><td>100.00</td><td>130.99</td><td>185.20</td><td>197.58</td><td>223.93</td><td>325.76</td></tr></table>

The stock performance graph assumes for comparison that the value of the Company’s common stock and of each index was $100 on December 31, 2008 and that all dividends were reinvested. Past performance is not necessarily an indicator of future results.



## PART II

## ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data presented below for the years 2009 through 2013 and as of the end of each such year are derived from our audited consolidated financial statements and should be read in conjunction with those financial statements and the related notes as well as in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

<table><tr><td>Year Ended December 31,
(in thousands, except per share data)</td><td>2013</td><td>2012</td><td>2011</td><td>2010</td><td>2009</td></tr><tr><td>Operating Data:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total revenues</td><td>$ 7,959,894</td><td>$ 7,688,024</td><td>$ 7,537,263</td><td>$ 6,752,504</td><td>$ 5,889,826</td></tr><tr><td>Operating income(1)</td><td>798,148</td><td>403,110</td><td>931,628</td><td>802,633</td><td>488,511</td></tr><tr><td>Net income(1)(2)</td><td>473,692</td><td>18,287</td><td>607,421</td><td>515,653</td><td>152,485</td></tr><tr><td>Per Share Data—Basic:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 2.16</td><td>$ 0.08</td><td>$ 2.80</td><td>$ 2.40</td><td>$ 0.71</td></tr><tr><td>Weighted-average shares</td><td>219,638</td><td>217,930</td><td>216,983</td><td>215,026</td><td>213,809</td></tr><tr><td>Per Share Data—Diluted:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 2.14</td><td>$ 0.08</td><td>$ 2.77</td><td>$ 2.37</td><td>$ 0.71</td></tr><tr><td>Weighted-average shares and potentially dilutive shares</td><td>220,941</td><td>219,457</td><td>219,229</td><td>217,711</td><td>215,295</td></tr><tr><td>Dividends declared per common share</td><td>$ 0.74</td><td>$ 0.44</td><td>$ 0.20</td><td>$ —</td><td>$ —</td></tr><tr><td>Balance Sheet Data:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total assets</td><td>$20,072,947</td><td>$19,827,930</td><td>$19,804,405</td><td>$19,653,829</td><td>$18,224,425</td></tr><tr><td>Total debt, including capital leases</td><td>8,074,804</td><td>8,489,947</td><td>8,495,853</td><td>9,150,116</td><td>8,419,770</td></tr><tr><td>Common stock</td><td>2,308</td><td>2,291</td><td>2,276</td><td>2,262</td><td>2,243</td></tr><tr><td>Total shareholders&#x27; equity</td><td>8,808,265</td><td>8,308,749</td><td>8,407,823</td><td>7,900,752</td><td>7,489,781</td></tr></table>

(1) Amounts for 2013 include restructuring charges of $23.4 million and an impairment charge of $33.5 million to write down the assets held for sale related to the businesses to be sold and certain long-lived assets, consisting of aircraft owned and operated by Pullmantur Air, to their fair value. (See Note 16. Restructuring and Related Impairment Charges to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information). Amounts for 2012 include an impairment charge of $385.4 million to write down Pullmantur's goodwill to its implied fair value and to write down trademarks and trade names and certain long-lived assets, consisting of aircraft owned and operated by Pullmantur Air, to their fair value. (See Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for more information regarding the impairment of these assets).

(2) Amounts for 2012 include a $33.7 million charge to record a 100% valuation allowance related to our deferred tax assets for Pullmantur. In addition, we reduced the deferred tax liability related to Pullmantur's trademarks and trade names and recorded a deferred tax benefit of $5.2 million. These adjustments resulted in an increase of $28.5 million to Other (expense) income. (See Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for more information regarding these transactions).



## 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, including, for example, under the “Risk Factors” and “Business” captions, 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 2014 set forth under the heading “Outlook” below), 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,” 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 of this report.

All forward-looking statements made in this Annual Report on Form 10-K speak only as of the date of this document. 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 have been organized to present the following:

• a review of our critical accounting policies and review 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, 2013 compared to the same period in 2012 and the year ended December 31, 2012 compared to the same period in 2011;

• a discussion of our business outlook, including our expectations for selected financial items for the first quarter and full year of 2014; and

• a discussion of our liquidity and capital resources, including our future capital and contractual commitments and potential funding sources.

## CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). (See 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

Our 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 15% projected residual value using the straight-line method over the estimated useful life of the asset, which is generally 30 years. The 30-year useful life of our newly constructed ships and 15% associated residual value are both based on 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. 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. Therefore, we estimate the costs of component systems based principally on general and technical information known about major ship component systems and their lives.



and 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 in cruise operating expenses.

During the first quarter of 2013, we performed a review of the estimated useful lives and associated residual values of ships in our fleet approaching the last third of their estimated useful lives. As a result, effective January 1, 2013, we revised the estimated useful lives of five ships from 30 years with a 15% associated residual value, to 35 years with a 10% associated residual value. The change in the estimated useful lives and associated residual value was accounted for prospectively as a change in accounting estimate. The 35-year useful life with a 10% associated residual value is based on revised estimates of the weighted-average useful life of all major ship components for these ships. The change in estimate is consistent with our recent investments in and future plans to continue to invest in the revitalizations of these ships and the use of certain ship components longer than originally estimated. The change allows us to better match depreciation expense with the periods these assets are expected to be in use. (See 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 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. (See Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data).

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 30-year ship useful life by one year, depreciation expense for 2013 would have increased by approximately $42.6 million. If our ships were estimated to have no residual value, depreciation expense for 2013 would have increased by approximately $168.2 million.

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

We review goodwill, trademarks and trade names, which are our most significant 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 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. 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 used in the discounted cash flow model are projected operating results, weighted-average cost of capital, and terminal value. The discounted cash flow model uses our 2014 projected operating results 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 2014 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 consists of a comparison of the fair value of the asset with its carrying amount. We estimate the fair value of our indefinite-life intangible assets, which

## PART II

consist of trademarks and trade names related to Pullmantur, using a discounted cash flow model and the relief-from-royalty method. The royalty rate used is based on comparable royalty agreements in the tourism and hospitality industry. The discount rate used is comparable to the rate used in valuing the Pullmantur reporting unit in our goodwill impairment test. 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.

We review our ships, aircraft 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 at the aggregated asset group level for our aircraft. (See Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data). 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.

## Pullmantur

During the fourth quarter of 2013, we performed our annual impairment review of goodwill for Pullmantur's reporting unit. We did not perform a qualitative assessment but instead proceeded directly to the two-step goodwill impairment test. As a result of the test, we determined the fair value of the Pullmantur reporting unit exceeded its carrying value by approximately 8% resulting in no impairment to Pullmantur's goodwill. We also performed the annual impairment



review of our trademarks and trade names using a discounted cash flow model and the relief-from-royalty method. Based on the results of our testing, we did not record an impairment of Pullmantur’s tradenames and trademarks for the year ended December 31, 2013.

During the fourth quarter of 2012, we performed the annual impairment evaluation of our goodwill and trademarks and trade names and we recognized total impairment related charges of $413.9 million associated with our Pullmantur brand. Included in this amount was a 100% valuation allowance of our deferred tax assets which resulted in a deferred income tax expense of $33.7 million recorded during the fourth quarter of 2012. In addition, Pullmantur has a deferred tax liability that was recorded at the time of acquisition. This liability represents the tax effect of the basis difference between the tax and book values of the trademarks and trade names that were acquired at the time of the acquisition. Due to the 2012 impairment charge related to these intangible assets, we reduced the deferred tax liability and recorded a deferred tax benefit of $5.2 million during the fourth quarter of 2012. The net $28.5 million impact of these adjustments was recognized in earnings during the fourth quarter of 2012 and was reported within Other (expense) income in our statements of comprehensive income (loss).

In connection with the December 2013 agreement to sell a majority stake in Pullmantur’s non-core businesses, we have agreed to retain certain long-lived assets, consisting of the aircraft owned and operated by Pullmantur Air. Due to an anticipated change in the nature of the cash flows to be generated by the Pullmantur aircraft, we reviewed the aircraft for impairment. We identified that the undiscounted future cash flows of the aircraft were less than their carrying value and recorded an impairment charge of $13.5 million during the fourth quarter of 2013, which is reported in Restructuring and related impairment charges in our consolidated statements of comprehensive income (loss).

Pullmantur is a brand targeted primarily at the Spanish, Portuguese and Latin American markets, with an increasing focus on Latin America. The persistent economic instability in these markets has created significant uncertainties in forecasting operating results and future cash flows used in our impairment analyses. We continue to monitor economic events in these markets for their potential impact on Pullmantur's business and valuation. Further, 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 opening of a regional head office in Latin America was a significant factor in shaping these assumptions.

If there are relatively modest changes to the projected future cash flows used in the impairment analyses, especially in Net Yields or if certain transfers of vessels from our other cruise brands to the Pullmantur fleet do not take place, it is reasonably possible that an impairment charge of Pullmantur’s reporting unit’s goodwill and trademark and trade names may be required. Of these factors, the planned transfers of vessels to the Pullmantur fleet is most significant to the projected future cash flows. If the transfers do not occur, we will likely fail step one of the impairment test. As of December 31, 2013, the carrying amount of goodwill attributable to our Pullmantur reporting unit was $152.1 million.

## Royal Caribbean International

During the fourth quarter of 2013, 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, its financial performance has been solid in the face of mixed economic environments and forecasts of operating results generated by the reporting unit appear sufficient to support its carrying value. As of December 31, 2013, the carrying amount of goodwill attributable to our Royal Caribbean International reporting unit was $287.1 million.

## 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 have non-derivative financial instruments designated as hedges of our net investment in our foreign operations and investments. The fuel options we entered into represent economic hedges which were not designated as hedging instruments for accounting purposes and thus, changes in their fair value were



immediately recognized in earnings. 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 14. Fair Value Measurements and Derivative Instruments to our consolidated financial statements for more information on related authoritative guidance, the Company's hedging programs and derivative financial instruments.

We enter into foreign currency forward contracts and collars, interest rate, cross-currency 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 and cross-currency swaps using expected future cash flows based on the instruments' contract terms and published forward curves for foreign currency exchange and interest rates. 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 estimate the fair value of our foreign currency collars using standard option pricing models with inputs based on the options' contract terms, such as exercise price and maturity, and readily available public market data, such as foreign exchange curves, foreign exchange volatility levels and discount rates.

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 forward fuel curves based on pricing inputs provided by third-party institutions that transact in the fuel indices we hedge. We validate these pricing inputs against 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 estimate the fair value for our fuel call options based on the prevailing market price for the instruments consisting of published price quotes for similar assets based on recent transactions in an active market.

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

## PART II

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

## 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 Australia and Latin America 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, Pullmantur's travel agency network, land-based tours and air charter business to third parties.



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.

## 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;

• 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 and storage costs, including the financial impact of fuel swap agreements; and

• 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 operating lease costs, costs associated with Pullmantur’s travel agency network, land-based tours and air charter business to third parties, vessel related insurance and entertainment.

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, which we believe 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.

Adjusted Earnings per Share represents Adjusted Net Income 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 excluding certain items that we believe adjusting for is meaningful when assessing our performance on a comparative basis. In 2013 and 2012, these items include restructuring and related impairment charges and impairment of Pullmantur related assets, respectively. For comparability purposes, starting in 2014, we will exclude results of the divested Pullmantur non-core businesses from our Adjusted Net Income. In anticipation of the 2014 change, we have presented Adjusted Net Income excluding the estimated impact of the divested Pullmantur non-core businesses in the financial tables under Results of Operations. The estimated impact of the divested Pullmantur non-core businesses was arrived at by adjusting the net income (loss) of these businesses for the ownership percentage we will retain as well as for intercompany transactions that will no longer be eliminated in our consolidated statements of comprehensive income (loss).

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. 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.



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. We have not provided a quantitative reconciliation of projected Gross Cruise Costs to projected Net Cruise Costs and projected Net Cruise Costs Excluding Fuel due to the significant uncertainty in projecting the costs deducted to arrive at these measures. Accordingly, we do not believe that reconciling information for such projected figures would be meaningful. For comparability purposes, starting in 2014, we will exclude results of the divested Pullmantur non-core businesses from our Net Cruise Costs. In anticipation of the 2014 change, we have presented Net Cruise Costs excluding these Pullmantur non-core businesses in the financial tables under Results of Operations.

Net Debt-to-Capital is a ratio which represents total long-term debt, including current portion of long-term debt, less cash and cash equivalents (“Net Debt”) divided by the sum of Net Debt and total shareholders’ equity. We believe Net Debt and Net Debt-to-Capital, along with total long-term debt and shareholders’ equity are useful measures of our capital structure. A reconciliation of historical Debt-to-Capital to Net Debt-to-Capital is provided below under Results of Operations.

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). For comparability purposes, starting in 2014, we will exclude results of the divested Pullmantur non-core businesses from our Net Revenues. In anticipation of the 2014 change, we have presented Net Revenues excluding these Pullmantur non-core businesses in the financial tables under Results of Operations.
The estimated impact of the divested Pullmantur non-core businesses was arrived at by adjusting net loss of these businesses for the ownership percentage we will retain as well as intercompany transactions that will no longer be eliminated in our consolidated statements of comprehensive income (loss).

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 it is the most relevant measure of our pricing performance because it reflects 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. We have not provided a quantitative reconciliation of projected Gross Yields to projected Net Yields due to the significant uncertainty in projecting the costs deducted to arrive at this measure. Accordingly, we do not believe that reconciling information for such projected figures would be meaningful. For comparability purposes, starting in 2014, we will exclude results of the divested Pullmantur non-core businesses from our Net Yields. In anticipation of the 2014 change, we have presented Net Yields excluding these Pullmantur non-core businesses in the financial tables 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 is just one of many elements impacting our revenues and expenses, it 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. Over the longer term, changes in guest sourcing and shifting the amount of purchases between currencies can significantly 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, allow 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 United States GAAP based financial measures. There are no specific rules or regulations for determining non-GAAP and Constant Currency measures, and as such, there exists the possibility that they may not be comparable to other companies within the industry.

## EXECUTIVE OVERVIEW

We believe our results of operations for 2013 reinforce the resilience of our business and the strength of our brands. Despite the effect of last year's negative industry media coverage and a slowly improving, but still challenging, global economy, we achieved diluted Adjusted Earnings per Share of $2.40 in 2013 as compared to $1.97 in 2012. Earnings per share was $2.14 in 2013 compared to $0.08 in 2012. Additionally, our net income and Adjusted Net Income for 2013 was $473.7 million and $530.6 million, respectively, and our Net Yields increased 2.7% and 3.2% on a Constant Currency basis.

Our ticket and onboard revenues grew in 2013 despite our capacity remaining relatively flat. Strong close-in demand for Europe and Asia drove 2013 improvement in passenger ticket revenue. Our global presence enables us to source guests from stronger markets in order to generate higher yields on an opportunistic basis with the ultimate goal of maximizing our long-term return on invested capital and shareholder value. Investments in ship revitalizations and other onboard enhancements led to onboard revenue growth in 2013.

In 2014, we will continue to focus on the development of key markets in Asia and on sourcing guests and adding capacity to the markets where we expect significant growth and profitability. We will also continue to invest in ship revitalizations, technology and other onboard revenue initiatives which we believe will drive profitability and improve the guest experience.
Our continued focus on cost control has helped us to maintain our profitability despite a tough operating environment. During 2013, we incurred $56.9 million in restructuring and related impairment charges associated with our profitability initiatives. Our first initiative relates to the restructuring and consolidation of our global sales, marketing, general and administrative structure, including the consolidation of most of our call centers located outside of the United States and the establishment of brand dedicated sales, marketing and revenue management teams in key priority markets. Our second initiative involves strategic changes to the Pullmantur brand which include the opening of a regional head office in Latin America to place operating management closer to the Latin American market, and the sale of Pullmantur's non-cruise businesses to allow Pullmantur to focus on its core business. We anticipate benefits as a result of the Pullmantur changes to occur in 2015 and beyond. We expect to incur approximately $23 million in additional restructuring and other costs in connection to both profitability initiatives in 2014.

During 2013, we ordered a third Royal Caribbean International Quantum-class ship and the conditional agreement to construct the third Royal Caribbean International Oasis-class ship became effective. Both ships are scheduled for delivery in the second quarter of 2016. We also have a second Quantum-class ship on order which is expected to enter service in the second quarter of 2015 and two ships on order for our joint venture TUI Cruises which are scheduled for delivery in the second quarters of 2014 and 2015. Each of these ships has committed financing arrangements. In late 2014, we will accept delivery of the first of a new generation of Royal Caribbean International cruise ships, Quantum of the Seas.

As part of our vessel revitalization program, twelve ships were revitalized for the Royal Caribbean International brand from 2011 to 2013 to incorporate certain of the most popular features of the Oasis-class ships on certain Freedom-class, Radiance-class and Vision-class ships. An additional two ships are scheduled for revitalization in 2014. During 2010, the Celebrity Cruises brand began a revitalization program for all four Millenium-class ships to incorporate certain Solstice-class features. The Celebrity revitalization program was completed in 2013.



As of December 31, 2013, we had liquidity of $1.9 billion, consisting of approximately $204.7 million in cash and cash equivalents and $1.7 billion available under our unsecured credit facilities. In 2013, we implemented a number of actions in furtherance of our refinancing strategy for our maturities in 2013 and 2014. We anticipate funding our 2014 maturities and other obligations through our cash flows from operations and our current financing arrangements. In addition, we continue to be focused on our goal of returning to an investment grade credit rating. We have already made strides in this direction and further improvements are anticipated through increasing operating cash flow, a moderate capital expenditure program, retiring of debt and favorable financing programs.

## RESULTS OF OPERATIONS

In addition to the items discussed above under “Executive Overview,” significant items for 2013 include:

• Total revenues increased 3.5% to $8.0 billion from $7.7 billion in 2012 primarily due to an increase in ticket prices and onboard spending.

• Cruise operating expenses increased 2.9% to $5.3 billion from $5.2 billion in 2012 primarily due to an increase in capacity, crew expenses and onboard and other expenses.

• We entered into a series of transactions to refinance our 2013 and 2014 bond maturities, reduce interest costs, improve financing terms and extend maturities. See Note 7. Long-Term Debt to our consolidated financial statements for further information.

• We entered into an agreement with STX France S.A. to build the third Oasis-class ship for Royal Caribbean International with approximately 5,400 berths which is expected to enter service in the second quarter of 2016. We have entered into a credit agreement to finance the purchase of the ship which includes a

## PART II

sovereign financing guarantee. Pullmantur’s Atlantic Star, which has been out of operation since 2009, was transferred to an affiliate of STX France S.A. as part of the consideration for the third Oasis-class ship. The transfer did not result in a gain or loss. See Note 5. Property and Equipment and Note 15. Commitments and Contingencies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information.

• We entered into an agreement with Meyer Werft to build the third Quantum-class ship for Royal Caribbean International with approximately 4,150 berths which is expected to enter service in the second quarter of 2016. We have entered into a credit agreement to finance the purchase of the ship which includes a sovereign financing guarantee. See Note 15. Commitments and Contingencies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information.

• We incurred restructuring exit costs of $23.4 million related to our profitability initiatives. In addition, we recognized an impairment charge of $13.5 million to write down the aircraft owned and operated by Pullmantur Air to their fair value, and a $20.0 million charge to write down assets classified as held for sale as of December 31, 2013. These charges are classified as Restructuring and related impairment charges in our consolidated statements of comprehensive income (loss). Refer to Note 16. Restructuring and Related Impairment Charges to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on our profitability initiatives.

For comparability purposes, starting in 2014, we will exclude results of the divested Pullmantur non-core businesses from our Adjusted Net Income. In anticipation of the 2014 change, we have presented the Adjusted Net Income excluding the estimated impact of the divested Pullmantur non-core businesses.



## PART II

We reported total revenues, operating income, net income, Adjusted Net Income, earnings per share and Adjusted Earnings per Share as shown in the following table (in thousands, except per share data):

<table><tr><td>Year Ended December 31,</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Total revenues</td><td>$7,959,894</td><td>$7,688,024</td><td>$7,537,263</td></tr><tr><td>Operating income</td><td>$ 798,148</td><td>$ 403,110</td><td>$ 931,628</td></tr><tr><td>Net income</td><td>$ 473,692</td><td>$ 18,287</td><td>$ 607,421</td></tr><tr><td>Pullmantur impairment related charges \( ^{(1)} \)</td><td>—</td><td>413,932</td><td>—</td></tr><tr><td>Restructuring and related impairment charges</td><td>56,946</td><td>—</td><td>—</td></tr><tr><td>Adjusted Net Income</td><td>$ 530,638</td><td>$ 432,219</td><td>$ 607,421</td></tr><tr><td>Estimated impact of divesting businesses held for sale</td><td>8,586</td><td>10,654</td><td>(9,572)</td></tr><tr><td>Adjusted Net Income excluding estimated impact of businesses held for sale</td><td>$ 539,224</td><td>$ 442,873</td><td>$ 597,849</td></tr><tr><td>Weighted-Average Shares Outstanding:</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>219,638</td><td>217,930</td><td>216,983</td></tr><tr><td>Diluted</td><td>220,941</td><td>219,457</td><td>219,229</td></tr><tr><td>Basic:</td><td></td><td></td><td></td></tr><tr><td>Earnings per Share</td><td>$ 2.16</td><td>$ 0.08</td><td>$ 2.80</td></tr><tr><td>Adjusted Earnings per Share</td><td>$ 2.42</td><td>$ 1.98</td><td>$ 2.80</td></tr><tr><td>Estimated impact of divesting businesses held for sale</td><td>$ 0.04</td><td>$ 0.05</td><td>$ (0.04)</td></tr><tr><td>Adjusted Earnings per Share excluding estimated impact of businesses held for sale</td><td>$ 2.46</td><td>$ 2.03</td><td>$ 2.76</td></tr><tr><td>Diluted:</td><td></td><td></td><td></td></tr><tr><td>Earnings per Share</td><td>$ 2.14</td><td>$ 0.08</td><td>$ 2.77</td></tr><tr><td>Adjusted Earnings per Share</td><td>$ 2.40</td><td>$ 1.97</td><td>$ 2.77</td></tr><tr><td>Estimated impact of divesting businesses held for sale</td><td>$ 0.04</td><td>$ 0.05</td><td>$ (0.04)</td></tr><tr><td>Adjusted Earnings per Share excluding estimated impact of businesses held for sale</td><td>$ 2.44</td><td>$ 2.02</td><td>$ 2.73</td></tr></table>

(1) Includes $28.5 million in net deferred tax expense related to the Pullmantur impairment.

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

<table><tr><td>Year Ended December 31,</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Passenger ticket revenues</td><td>71.9%</td><td>72.8%</td><td>73.3%</td></tr><tr><td>Onboard and other revenues</td><td>28.1</td><td>27.2</td><td>26.7</td></tr><tr><td>Total revenues</td><td>100.0%</td><td>100.0%</td><td>100.0%</td></tr><tr><td>Cruise operating expenses:</td><td></td><td></td><td></td></tr><tr><td>Commissions, transportation and other</td><td>16.5%</td><td>16.8%</td><td>17.2%</td></tr><tr><td>Onboard and other</td><td>7.1</td><td>6.9</td><td>7.1</td></tr><tr><td>Payroll and related</td><td>10.6</td><td>10.8</td><td>11.0</td></tr><tr><td>Food</td><td>5.9</td><td>5.8</td><td>5.6</td></tr><tr><td>Fuel</td><td>11.6</td><td>11.8</td><td>10.1</td></tr><tr><td>Other operating</td><td>14.9</td><td>15.0</td><td>14.5</td></tr><tr><td>Total cruise operating expenses</td><td>66.7</td><td>67.1</td><td>65.6</td></tr><tr><td>Marketing, selling and administrative expenses</td><td>13.1</td><td>13.2</td><td>12.7</td></tr><tr><td>Depreciation and amortization expenses</td><td>9.5</td><td>9.5</td><td>9.3</td></tr><tr><td>Impairment of Pullmantur related assets</td><td>—</td><td>5.0</td><td>—</td></tr><tr><td>Restructuring and related impairment charges</td><td>0.7</td><td>—</td><td>—</td></tr><tr><td>Operating income</td><td>10.0</td><td>5.2</td><td>12.4</td></tr><tr><td>Other expense</td><td>(4.1)</td><td>(5.0)</td><td>(4.3)</td></tr><tr><td>Net income</td><td>6.0%</td><td>0.2%</td><td>8.1%</td></tr></table>

Selected statistical information is shown in the following table:

<table><tr><td>Year Ended December 31,</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Passengers Carried</td><td>4,884,763</td><td>4,852,079</td><td>4,850,010</td></tr><tr><td>Passenger Cruise Days</td><td>35,561,772</td><td>35,197,783</td><td>34,818,335</td></tr><tr><td>APCD</td><td>33,974,852</td><td>33,705,584</td><td>33,235,508</td></tr><tr><td>Occupancy</td><td>104.7%</td><td>104.4%</td><td>104.8%</td></tr></table>

For comparability purposes, starting in 2014, we will exclude results of the divested Pullmantur non-core businesses from our Net Yields and Net Cruise Costs. In anticipation of the 2014 change, we have presented Net Yields and Net Cruise Costs excluding these Pullmantur non-core businesses.



## PART II

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

<table><tr><td>Year Ended December 31,</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Passenger ticket revenues</td><td>$5,722,718</td><td>$5,756,849</td><td>$5,594,595</td></tr><tr><td>Onboard and other revenues</td><td>2,237,176</td><td>2,232,642</td><td>2,093,429</td></tr><tr><td>Total revenues</td><td>7,959,894</td><td>7,989,491</td><td>7,688,024</td></tr><tr><td>Less:</td><td></td><td></td><td></td></tr><tr><td>Commissions, transportation and other</td><td>1,314,595</td><td>1,319,340</td><td>1,289,255</td></tr><tr><td>Onboard and other</td><td>568,615</td><td>567,094</td><td>529,453</td></tr><tr><td>Net revenues</td><td>6,076,684</td><td>6,103,057</td><td>5,869,316</td></tr><tr><td>Less:</td><td></td><td></td><td></td></tr><tr><td>Net revenues related to businesses held for sale</td><td>218,350</td><td>211,627</td><td>189,527</td></tr><tr><td>Net revenues excluding businesses held for sale</td><td>$5,858,334</td><td>$5,891,430</td><td>$5,679,789</td></tr><tr><td>APCD</td><td>33,974,852</td><td>33,975,584</td><td>33,235,508</td></tr><tr><td>Gross Yields</td><td>$ 234.29</td><td>$ 235.16</td><td>$ 228.09</td></tr><tr><td>Net Yields</td><td>$ 178.86</td><td>$ 179.63</td><td>$ 174.13</td></tr><tr><td>Net Yields excluding businesses held for sale</td><td>$ 172.43</td><td>$ 173.41</td><td>$ 168.51</td></tr></table>

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

<table><tr><td>Year Ended December 31,</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Total cruise operating expenses</td><td>$5,305,270</td><td>$5,302,946</td><td>$5,157,434</td></tr><tr><td>Marketing, selling and administrative expenses</td><td>1,044,819</td><td>1,043,050</td><td>1,011,543</td></tr><tr><td>Gross Cruise Costs</td><td>$6,350,089</td><td>$6,345,996</td><td>$6,168,977</td></tr><tr><td>Less:</td><td></td><td></td><td></td></tr><tr><td>Commissions, transportation and other</td><td>1,314,595</td><td>1,319,340</td><td>1,289,255</td></tr><tr><td>Onboard and other</td><td>568,615</td><td>567,094</td><td>529,453</td></tr><tr><td>Net Cruise Costs</td><td>$4,466,879</td><td>$4,459,562</td><td>$4,350,269</td></tr><tr><td>Less:</td><td></td><td></td><td></td></tr><tr><td>Fuel</td><td>924,414</td><td>927,572</td><td>909,691</td></tr><tr><td>Net Cruise Costs Excluding Fuel</td><td>$3,542,465</td><td>$3,531,990</td><td>$3,440,578</td></tr><tr><td>Net Cruise Costs</td><td>$4,466,879</td><td>$4,459,562</td><td>$4,350,269</td></tr><tr><td>Less:</td><td></td><td></td><td></td></tr><tr><td>Net Cruise Costs related to businesses held for sale</td><td>224,864</td><td>219,241</td><td>199,596</td></tr><tr><td>Net Cruise Costs excluding businesses held for sale</td><td>$4,242,015</td><td>$4,240,321</td><td>$4,150,673</td></tr><tr><td>Less:</td><td></td><td></td><td></td></tr><tr><td>Fuel</td><td>924,414</td><td>927,572</td><td>909,691</td></tr><tr><td>Net Cruise Costs Excluding Fuel and businesses held for sale</td><td>$3,317,601</td><td>$3,312,749</td><td>$3,240,982</td></tr><tr><td>APCD</td><td>33,974,852</td><td>33,974,852</td><td>33,705,584</td></tr><tr><td>Gross Cruise Costs per APCD</td><td>$ 186.91</td><td>$ 186.79</td><td>$ 183.03</td></tr><tr><td>Net Cruise Costs per APCD</td><td>$ 131.48</td><td>$ 131.26</td><td>$ 129.07</td></tr><tr><td>Net Cruise Cost excluding businesses held for sale per APCD</td><td>$ 124.86</td><td>$ 124.81</td><td>$ 123.14</td></tr><tr><td>Net Cruise Cost Excluding Fuel per APCD</td><td>$ 104.27</td><td>$ 103.96</td><td>$ 102.08</td></tr><tr><td>Net Cruise Costs Excluding Fuel and businesses held for sale per APCD</td><td>$ 97.65</td><td>$ 97.51</td><td>$ 96.16</td></tr></table>



## PART II

In anticipation of the 2014 change noted above, in the tables below, we have presented our 2013 quarterly Net Yields and Net Cruise Costs excluding the Pullmantur non-core businesses.

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

<table><tr><td></td><td>First Quarter</td><td>Second Quarter</td><td>Third Quarter</td><td>Fourth Quarter</td><td>Year Ended December 31, 2013</td></tr><tr><td>Passenger ticket revenues</td><td>$1,393,778</td><td>$1,366,713</td><td>$1,672,051</td><td>$1,290,176</td><td>$5,722,718</td></tr><tr><td>Onboard and other revenues</td><td>517,442</td><td>516,054</td><td>639,698</td><td>563,982</td><td>2,237,176</td></tr><tr><td>Total revenues</td><td>1,911,220</td><td>1,882,767</td><td>2,311,749</td><td>1,854,158</td><td>7,959,894</td></tr><tr><td>Less:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Commissions, transportation and other</td><td>322,937</td><td>316,506</td><td>378,291</td><td>296,861</td><td>1,314,595</td></tr><tr><td>Onboard and other</td><td>121,487</td><td>140,710</td><td>178,269</td><td>128,149</td><td>568,615</td></tr><tr><td>Net Revenues</td><td>1,466,796</td><td>1,425,551</td><td>1,755,189</td><td>1,429,148</td><td>6,076,684</td></tr><tr><td>Less:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Revenues related to businesses held for sale</td><td>33,114</td><td>39,431</td><td>70,098</td><td>75,707</td><td>218,350</td></tr><tr><td>Net Revenues excluding businesses held for sale</td><td>$1,433,682</td><td>$1,386,120</td><td>$1,685,091</td><td>$1,353,441</td><td>$5,858,334</td></tr><tr><td>APCD</td><td>8,428,110</td><td>8,238,182</td><td>8,667,948</td><td>8,640,612</td><td>33,974,852</td></tr><tr><td>Gross Yields</td><td>$ 226.77</td><td>$ 228.54</td><td>$ 266.70</td><td>$ 214.59</td><td>$ 234.29</td></tr><tr><td>Net Yields</td><td>$ 174.04</td><td>$ 173.04</td><td>$ 202.49</td><td>$ 165.40</td><td>$ 178.86</td></tr><tr><td>Net Yields excluding businesses held for sale</td><td>$ 170.11</td><td>$ 168.26</td><td>$ 194.40</td><td>$ 156.64</td><td>$ 172.43</td></tr></table>

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

<table><tr><td></td><td>First Quarter</td><td>Second Quarter</td><td>Third Quarter</td><td>Fourth Quarter</td><td>December 31, 2013</td></tr><tr><td>Total cruise operating expenses</td><td>$1,282,190</td><td>$1,323,619</td><td>$1,416,801</td><td>$1,282,660</td><td>$5,305,270</td></tr><tr><td>Marketing, selling and administrative expenses(1)</td><td>274,034</td><td>257,948</td><td>249,954</td><td>262,883</td><td>1,044,819</td></tr><tr><td>Gross Cruise Costs</td><td>1,556,224</td><td>1,581,567</td><td>1,666,755</td><td>1,545,543</td><td>6,350,089</td></tr><tr><td>Less:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Commissions, transportation and other</td><td>322,937</td><td>316,506</td><td>378,291</td><td>296,861</td><td>1,314,595</td></tr><tr><td>Onboard and other</td><td>121,487</td><td>140,710</td><td>178,269</td><td>128,149</td><td>568,615</td></tr><tr><td>Net Cruise Costs</td><td>$1,111,800</td><td>$1,124,351</td><td>$1,110,195</td><td>$1,120,533</td><td>$4,466,879</td></tr><tr><td>Less:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fuel</td><td>241,652</td><td>232,471</td><td>215,686</td><td>234,605</td><td>924,414</td></tr><tr><td>Net Cruise Costs Excluding Fuel</td><td>$ 870,148</td><td>$ 891,880</td><td>$ 894,509</td><td>$ 885,928</td><td>$3,542,465</td></tr><tr><td>Net Cruise Costs</td><td>$1,111,800</td><td>$1,124,351</td><td>$1,110,195</td><td>$1,120,533</td><td>$4,466,879</td></tr><tr><td>Less:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Cruise Costs related to businesses held for sale</td><td>34,971</td><td>49,196</td><td>67,760</td><td>72,937</td><td>224,864</td></tr><tr><td>Net Cruise Costs excluding businesses held for sale</td><td>$1,076,829</td><td>$1,075,155</td><td>$1,042,435</td><td>$1,047,596</td><td>$4,242,015</td></tr><tr><td>Less:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fuel</td><td>241,652</td><td>232,471</td><td>215,686</td><td>234,605</td><td>924,414</td></tr><tr><td>Net Cruise Costs Excluding Fuel and businesses held for sale</td><td>$ 835,177</td><td>$ 842,684</td><td>$ 826,749</td><td>$ 812,991</td><td>$3,317,601</td></tr><tr><td>APCD</td><td>8,428,110</td><td>8,238,182</td><td>8,667,948</td><td>8,640,612</td><td>33,974,852</td></tr><tr><td>Gross Cruise Costs per APCD</td><td>$ 184.65</td><td>$ 191.98</td><td>$ 192.29</td><td>$ 178.87</td><td>$ 186.91</td></tr><tr><td>Net Cruise Costs per APCD</td><td>$ 131.92</td><td>$ 136.48</td><td>$ 128.08</td><td>$ 129.68</td><td>$ 131.48</td></tr><tr><td>Net Cruise Costs excluding businesses held for sale per APCD</td><td>$ 127.77</td><td>$ 130.51</td><td>$ 120.26</td><td>$ 121.24</td><td>$ 124.86</td></tr><tr><td>Net Cruise Costs Excluding Fuel per APCD</td><td>$ 103.24</td><td>$ 108.26</td><td>$ 103.20</td><td>$ 102.53</td><td>$ 104.27</td></tr><tr><td>Net Cruise Costs Excluding Fuel and businesses held for sale per APCD</td><td>$ 99.09</td><td>$ 102.29</td><td>$ 95.38</td><td>$ 94.09</td><td>$ 97.65</td></tr></table>

(1) For the three months ended June 30, 2013, $1.7 million has been reclassified in the consolidated statements of comprehensive income (loss) from Marketing selling and administrative expenses to Restructuring and related impairment charges in order to conform to the presentation in this Annual Report on Form 10-K impacting the Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel calculations reported for the three months ended June 30, 2013.



## PART II

Net Debt-to-Capital was calculated as follows (in thousands):

<table><tr><td>As of December 31,</td><td>2013</td><td>2012</td></tr><tr><td>Long-term debt, net of current portion</td><td>$ 6,511,426</td><td>$ 6,970,464</td></tr><tr><td>Current portion of long-term debt</td><td>1,563,378</td><td>1,519,483</td></tr><tr><td>Total debt</td><td>8,074,804</td><td>8,489,947</td></tr><tr><td>Less: Cash and cash equivalents</td><td>204,687</td><td>194,855</td></tr><tr><td>Net Debt</td><td>$ 7,870,117</td><td>$ 8,295,092</td></tr><tr><td>Total shareholders&#x27; equity</td><td>$ 8,808,265</td><td>$ 8,308,749</td></tr><tr><td>Total debt</td><td>8,074,804</td><td>8,489,947</td></tr><tr><td>Total debt and shareholders&#x27; equity</td><td>16,883,069</td><td>16,798,696</td></tr><tr><td>Debt-to-Capital</td><td>47.8%</td><td>50.5%</td></tr><tr><td>Net Debt</td><td>7,870,117</td><td>8,295,092</td></tr><tr><td>Net Debt and shareholders&#x27; equity</td><td>$16,678,382</td><td>$16,603,841</td></tr><tr><td>Net Debt-to-Capital</td><td>47.2%</td><td>50.0%</td></tr></table>

## OUTLOOK

We have presented the tables below excluding Pullmantur’s non-core businesses.

On January 27, 2014, we announced the following initial first quarter and full year 2014 guidance, which remains essentially unchanged:

<table><tr><td>Full Year 2014</td><td>As Reported</td><td>Constant Currency</td></tr><tr><td>Net Yields</td><td>Approx. 2%</td><td>2% to 3%</td></tr><tr><td>Net Cruise Costs per APCD</td><td>Approx. Flat</td><td>Approx. Flat</td></tr><tr><td>Net Cruise Costs per APCD, excluding Fuel</td><td>Approx. Flat</td><td>Flat to slightly down</td></tr><tr><td>Capacity Increase</td><td></td><td>1.7%</td></tr><tr><td>Depreciation and Amortization</td><td>$780 to $790 million</td><td></td></tr><tr><td>Interest Expense, net</td><td>$260 to $270 million</td><td></td></tr><tr><td>Fuel Consumption (metric tons)</td><td></td><td>1,352,000</td></tr><tr><td>Fuel Expenses</td><td></td><td>$944 million</td></tr><tr><td>Percent Hedged (fwd consumption)</td><td></td><td>55%</td></tr><tr><td>Impact of 10% change in fuel prices</td><td></td><td>$41.4 million</td></tr><tr><td>Adjusted Earnings per Share—Diluted*</td><td></td><td>$3.20 to $3.40</td></tr></table>

<table><tr><td>First Quarter 2014</td><td>As Reported</td><td>Constant Currency</td></tr><tr><td>Net Yields</td><td>Approx. (2%)</td><td>Approx. Flat</td></tr><tr><td>Net Cruise Costs per APCD</td><td>1% to 2%</td><td>Approx. 2%</td></tr><tr><td>Net Cruise Costs per APCD, excluding Fuel</td><td>Approx. 2%</td><td>2% to 3%</td></tr><tr><td>Capacity Increase</td><td>0.7%</td><td></td></tr><tr><td>Depreciation and Amortization</td><td>$190 to $200 million</td><td></td></tr><tr><td>Interest Expense, net</td><td>$60 to $70 million</td><td></td></tr><tr><td>Fuel Consumption (metric tons)</td><td>342,000</td><td></td></tr><tr><td>Fuel Expenses</td><td>$242 million</td><td></td></tr><tr><td>Percent Hedged (fwd consumption)</td><td>52%</td><td></td></tr><tr><td>Impact of 10% change in fuel prices</td><td>$11.5 million</td><td></td></tr><tr><td>Adjusted Earnings per Share—Diluted*</td><td>$0.20 to $0.30</td><td></td></tr></table>

*Adjusted Earnings per Share estimates for the Full Year and First Quarter of 2014 are presented in lieu of US GAAP earnings per share estimates due to significant uncertainty in projecting the amounts adjusted to arrive at this measure, such as, uncertainty in the amount of Pullmantur non-core business results that we will absorb in 2014. Refer to Note 16. Restructuring and Related Impairment Charges in our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on our profitability initiatives and to the definition for Adjusted Earnings per Share herein. For the year ended December 31, 2013, we incurred restructuring and related impairment charges of $56.9 million, or $0.26 per share on a diluted basis.

## YEAR ENDED DECEMBER 31, 2013 COMPARED TO YEAR ENDED DECEMBER 31, 2012

In this section, references to 2013 refer to the year ended December 31, 2013 and references to 2012 refer to the year ended December 31, 2012.

## Revenues

Total revenues for 2013 increased $271.9 million, or 3.5%, to $8.0 billion from $7.7 billion in 2012.

Passenger ticket revenues comprised 71.9% of our 2013 total revenues. Passenger ticket revenues increased by $128.1 million, or 2.3%, to $5.7 billion in 2013 from $5.6 billion in 2012. The increase was primarily due to:

• an increase in ticket prices for European sailings and certain deployment initiatives, including but not limited to increased deployment in Australia and Asia, all of which contributed to a $117.6 million increase in Passenger ticket revenues; and



• a 0.8% increase in capacity, which increased Passenger ticket revenues by $44.6 million. The increase in capacity was primarily due to the addition of Celebrity Reflection which entered service in October 2012. This increase was partially offset by the transfer of Ocean Dream to an unrelated third party in April 2012 as part of a six year bareboat charter agreement and the transfer of Monarch of the Seas to Pullmantur in April 2013 reducing capacity due to the two-month lag further discussed in Note 1. General.

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 approximately $34.1 million.

The remaining 28.1% of 2013 total revenues was comprised of Onboard and other revenues, which increased $143.7 million, or 6.9%, to $2.2 billion in 2013 from $2.1 billion in 2012.

The increase was primarily due to:

• a $101.7 million increase in onboard revenue primarily due to higher spending on a per passenger basis due to revenue enhancing initiatives as a result of our ship revitalization projects and an increase in shore excursion revenues attributable to certain deployment initiatives particularly in Australia. Onboard and other revenues included concession revenues of $316.3 million in 2013 and $288.6 million in 2012;

• a $28.3 million increase in revenues related to Pullmantur’s travel agency network and air charter business due to the addition of new tour packages; and

• a $14.8 million increase attributable to the 0.8% increase in capacity noted above.

## Cruise Operating Expenses

Total cruise operating expenses increased $147.8 million, or 2.9%, to $5.3 billion from $5.2 billion in 2012. The increase was primarily due to:

• a $39.6 million increase attributable to the 0.8% increase in capacity noted above;

• a $22.6 million increase in crew expenses related to higher medical expenses and, to a lesser extent, an increase in crew movement related to deployment changes;

• a $21.1 million increase in expenses related to Pullmantur’s travel agency network and air charter business noted above;

## PART II

• a $16.4 million increase in food expenses due to higher costs on a per passenger basis related to our new culinary initiatives and itinerary changes;

• a $12.1 million increase in expenses attributable to the impact of the unscheduled drydocks for Celebrity Millennium and Grandeur of the Seas and the 2012 gain from the sale of Oceanic which did not recur in 2013; and

• an $8.6 million increase in shore excursion expenses attributable to itinerary changes noted above.

Marketing, Selling and Administrative Expenses
Marketing, selling and administrative expenses of $1.0 billion for 2013 remained consistent with 2012.

## Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2013 increased $24.2 million or 3.4% to $754.7 million from $730.5 million in 2012. The increase was primarily due to the addition of Celebrity Reflection which entered service in October 2012. The increase was partially offset by the favorable effect of changes made in the first quarter of 2013 to the estimated useful lives and associated residual values for five ships of approximately $11.0 million.

## Restructuring and Related Impairment Charges

During 2013, we incurred restructuring charges of approximately $23.4 million as a result of global restructuring actions and the pending sale of Pullmantur’s non-core businesses. In addition, we recognized an impairment charge of $33.5 million to write down the assets held for sale related to the businesses to be sold and to write down certain long-lived assets, consisting of three aircraft owned and operated by Pullmantur Air, to their fair value. These impairment charges were due to the Pullmantur restructuring initiative. (See Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets above for more information regarding the impairment of these assets).

## Other Income (Expense)

Interest expense, net of interest capitalized, decreased $23.4 million, or 6.6%, to $332.4 million in 2013 from $355.8 million in 2012. The decrease was due to lower interest rates and a lower average debt level.

Extinguishment of unsecured senior notes, decreased $3.3 million, or 44.0%, to $4.2 million in 2013 compared to $7.5 million in 2012. The decrease is due to a lower amount of notes repurchased during 2013 partially offset by a higher premium paid in connection with the 2013 repurchases.



Other expense decreased $41.1 million, or 96.0%, to $1.7 million in 2013 compared to $42.9 million for the same period in 2012. This change was primarily due to:

• a $29.8 decrease in deferred income tax expense as a result of a 100% valuation allowance recorded in connection with Pullmantur’s deferred tax assets in 2012 partially offset by a reduction in Pullmantur’s deferred tax liability and resulting tax benefit related to a 2013 impairment of Pullmantur’s long-lived assets and a 2012 impairment charge of Pullmantur’s trademarks and trade names; and

• income of $32.0 million from our equity method investments in 2013 as compared to income of $23.8 million in 2012.

## Net Yields

Net Yields increased 2.7% in 2013 compared to 2012 primarily due to an increase in ticket prices, onboard revenue and Pullmantur's travel agency network and air charter business noted above. Net Yields increased 3.2% in 2013 compared to 2012 on a Constant Currency basis.

## Net Cruise Costs

Net Cruise Costs increased 2.7% in 2013 compared to 2012 primarily due to the increase in crew expenses, food expenses, indirect operating expenses and expenses related to Pullmantur's travel agency network and air charter business, noted above. Net Cruise Costs per APCD increased 1.9% in 2013 compared to 2012. Net Cruise Costs per APCD on a Constant Currency basis increased 1.7% in 2013 compared to 2012.

## Net Cruise Costs Excluding Fuel

Net Cruise Costs Excluding Fuel per APCD increased 2.1% in 2013 compared to 2012. Net Cruise Costs Excluding Fuel per APCD on a Constant Currency basis increased 1.8% in 2013 compared to 2012.

## YEAR ENDED DECEMBER 31, 2012 COMPARED TO YEAR ENDED DECEMBER 31, 2011

In this section, references to 2012 refer to the year ended December 31, 2012 and references to 2011 refer to the year ended December 31, 2011.

## Revenues

Total revenues for 2012 increased $150.8 million, or 2.0%, to $7.7 billion from $7.5 billion in 2011. Passenger ticket revenues comprised 72.8% of our 2012 total revenues. Passenger ticket revenues increased by $68.7 million, or 1.2%, to $5.6 billion in 2012 from $5.5 billion in 2011. The increase was primarily due to:

• an increase in ticket prices primarily driven by changes to our international distribution system mainly in Brazil and certain deployment initiatives including, but not limited to increased deployment in Australia and China, all of which contributed to a $94.6 million increase in Passenger ticket revenues; and

• a 1.4% increase in capacity, which contributed to a $78.1 million increase in passenger ticket revenue. The increase in capacity was primarily due to the addition of Celebrity Silhouette which entered service in July 2011 and the addition of Celebrity Reflection which entered service in October 2012. This increase was partially offset by the sale of Celebrity Mercury to TUI Cruises in February 2011 and the completion of our one-year charter of Bleu de France in November 2011 following its sale to a third party in November 2010. The increase in capacity was also partially offset by the delivery of Ocean Dream to an unrelated third party in April 2012 as part of a six-year bareboat charter agreement.

The increase was partially offset by the unfavorable effect of changes in foreign currency exchange rates related to our passenger ticket revenue transactions denominated in currencies other than the United States dollar of approximately $104.0 million.

The remaining 27.2% of 2012 total revenues was comprised of Onboard and other revenues, which increased $82.1 million, or 4.1%, to $2.1 billion in 2012 from $2.0 billion in 2011. The increase was primarily due to:

• a $32.5 million increase in onboard revenue attributable to higher spending on a per passenger basis primarily due to the addition of specialty restaurants and other onboard activities as a result of our ship revitalization projects and other revenue enhancing initiatives. Onboard and other revenues included concession revenues of $288.6 million in 2012 and $273.4 million in 2011;

• a $25.4 million increase attributable to the 1.4% increase in capacity noted above; and

• a $19.1 million increase in revenues related to Pullmantur’s travel agency network and air charter business due to an increase in guests and the addition of new itineraries.



The increase was partially offset by the unfavorable effect of changes in foreign currency exchange rates related to our onboard and other revenue transactions denominated in currencies other than the United States dollar of approximately $22.9 million.

## Cruise Operating Expenses

Total cruise operating expenses for 2012 increased $214.8 million, or 4.3%, to $5.2 billion from $4.9 billion in 2011. The increase was primarily due to:

• a $138.9 million increase in fuel expenses which are net of the financial impact of fuel swap agreements accounted for as hedges due to an increase in fuel prices in 2012 as compared to 2011;

• a $67.5 million increase attributable to the 1.4% increase in capacity noted above;

• a $32.1 million increase in expenses related to Pullmantur’s travel agency network and air charter business noted above; and

• a $22.5 million increase in food expenses due to higher costs on a per passenger basis related to our new culinary initiatives.

The increase was partially offset by:

• the favorable effect of changes in foreign currency exchange rates related to our cruise operating expenses denominated in currencies other than the United States dollar of approximately $74.5 million; and

• a $39.5 million decrease in commissions expense attributable to increased charter business and changes in our distribution channels.

Marketing, Selling and Administrative Expenses
Marketing, selling and administrative expenses for 2012 increased $50.9 million or 5.3% to $1.0 billion from $960.6 million for 2011. The increase was due to an increase in costs associated with investments in technology and to an increase in advertising expenses related to our global expansion. These increases were partially offset by the favorable effect of changes in foreign currency exchange rates related to our Marketing, selling and administrative expenses denominated in currencies other than the United States dollar.

## Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2012 increased $28.1 million or 4.0% to $730.5 million from $702.4 million for 2011. The increase was primarily due to the addition of Celebrity Silhouette which entered service in July 2011, the addition of Celebrity Reflection which entered service in October 2012 and to new shipboard additions associated with our ship revitalization projects. This increase was partially offset by the sale of Celebrity Mercury to TUI Cruises in February 2011.

## Impairment of Pullmantur Related Assets

During 2012, we recognized an impairment charge of $385.4 million to write down Pullmantur’s goodwill to its implied fair value and to write down trademarks and trade names and certain long-lived assets, consisting of three aircraft owned and operated by Pullmantur Air, to their fair value. (See Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets above for more information regarding the impairment of these assets).

## Other Income (Expense)

Interest expense, net of interest capitalized, decreased to $355.8 million in 2012 from $382.4 million in 2011. The decrease was due to lower interest rates and a lower average debt level.

Other expense was $50.4 million in 2012 compared to Other income of $32.9 million in 2011 for a net change of $83.3 million when comparing these periods. The change in Other expense was primarily due to the following:

• Deferred income tax expense of $33.7 million as a result of a 100% valuation allowance recorded in connection with Pullmantur’s deferred tax assets that are no longer expected to be recovered prior to their expiration;

• A reduction in deferred income tax expense of $5.2 million due to a reduction in Pullmantur’s deferred tax liability related to the impairment charge of Pullmantur’s trademarks and trade names;

• A loss of $8.4 million associated with our fuel derivative instruments in 2012 as compared to a gain of $26.0 million in 2011, for a net change of $34.4 million;

• A loss of $7.5 million on the early extinguishment of €255.0 million, or approximately $328.0 million in aggregate principal amount of our outstanding €1.0 billion unsecured senior notes due 2014 in September 2012.



## Net Yields

Net Yields increased 1.5% in 2012 compared to 2011 primarily due to an increase in Pullmantur's land based tours, hotel and air packages revenue and an increase in onboard spending. In addition, the increase was due to the changes in our international distribution system mainly in Brazil and certain deployment initiatives. Net Yields increased 3.0% in 2012 compared to 2011 on a Constant Currency basis.

## Net Cruise Costs

Net Cruise Costs increased 6.9% in 2012 compared to 2011 due to the 1.4% increase in capacity and a 5.4% increase in Net Cruise Cost per APCD. The increase in Net Cruise Costs per APCD was primarily due to an increase in fuel and Pullmantur's land-based tours, hotel and air packages expenses as discussed above. In addition, the increase in Net Cruise Cost per APCD was due to the changes in our international distribution system mainly in Brazil and certain deployment initiatives.

Net Cruise Costs per APCD increased 6.8% in 2012 compared to 2011 on a Constant Currency basis. Net Cruise Costs Excluding Fuel per APCD increased 2.7% in 2012 compared to 2011. Net Cruise Costs Excluding Fuel per APCD increased 4.2% in 2012 compared to 2011 on a Constant Currency basis.

## 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 remained consistent at $1.4 billion. The primary drivers for 2013 include a $392.5 million increase in cash receipts from customer deposits and an $88.0 million increase in cash receipts from onboard spending, mostly offset by $69.7 million of cash received on the settlement of derivative financial instruments in 2012 which did not recur in 2013 and the timing of payments to vendors in 2013 as compared to 2012.

Net cash used in investing activities was $824.5 million for 2013 compared to $1.3 billion for 2012. During 2013, our use of cash was primarily related to capital expenditures of $763.8 million, down from $1.3 billion for 2012. The decrease in capital expenditures is attributable to the delivery of a ship, Celebrity Reflection, in 2012 which did not recur in 2013, partially offset by a higher level of ships under construction in 2013 compared to 2012. The decrease in capital expenditures was partially offset by investments of $70.6 million to our unconsolidated affiliates during 2013. In addition, during 2013 we paid $17.3 million on settlements on our foreign currency forward contracts, up from $10.9 million paid in 2012.

Net cash used in financing activities was $576.6 million for 2013 compared to $179.6 million for 2012. This change was primarily due to an increase of $295.2 million in repayments of debt, a decrease of $109.0 million in debt proceeds and an increase of $25.9 million paid in dividends. The increase in repayments of debt was primarily due to the payment at maturity of $900.0 million of unsecured senior notes, partially offset by a decrease of $170.0 million in repayments on unsecured revolving credit facilities, a decrease in the early extinguishment of senior notes of $319.7 million and the prepayment of a $100.0 million unsecured term loan during 2012. The decrease in debt proceeds was primarily due to a $650.0 million bond issuance and $963.5 million of debt facilities being drawn upon in 2012, partially offset by $474.5 million drawn upon in 2013 and an increase of $1.0 billion of borrowings on our revolving credit facilities in 2013.

## FUTURE CAPITAL COMMITMENTS

Our future capital commitments consist primarily of new ship orders. As of December 31, 2013, we had three Quantum-class ships and one Oasis-class ship on order for our Royal Caribbean International brand with an aggregate capacity of approximately 17,850 berths.

As of December 31, 2013, the aggregate cost of our ships on order was approximately $4.7 billion, of which we had disbursed $518.8 million as of such date. Approximately 36.3% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at December 31, 2013. (See Note 14. Fair Value Measurements and Derivative Instruments and Note 15. Commitments and Contingencies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data).

As of December 31, 2013, anticipated overall capital expenditures, based on our existing ships on order, are approximately $1.3 billion for 2014, $1.3 billion for 2015, $2.1 billion for 2016 and $0.3 billion for 2017.



## CONTRACTUAL OBLIGATIONS

As of December 31, 2013, our contractual obligations were as follows (in thousands):

<table><tr><td rowspan="2"></td><td colspan="6">Payments Due By period</td></tr><tr><td>Total</td><td>Less Than 1 Year</td><td>1-3 Years</td><td>3-5 Years</td><td>More Than 5 Years</td><td></td></tr><tr><td>Operating Activities:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Operating lease obligations \( ^{(1)(2)} \)</td><td>$ 499,930</td><td>$ 47,097</td><td>$ 88,484</td><td>$ 79,203</td><td>$ 285,146</td><td></td></tr><tr><td>Interest on long-term debt \( ^{(3)} \)</td><td>1,093,746</td><td>228,083</td><td>340,646</td><td>184,098</td><td>340,919</td><td></td></tr><tr><td>Other \( ^{(4)} \)</td><td>696,827</td><td>200,660</td><td>254,795</td><td>158,432</td><td>82,940</td><td></td></tr><tr><td>Investing Activities:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Ship purchase obligations</td><td>3,722,011</td><td>934,517</td><td>2,787,494</td><td>—</td><td>—</td><td></td></tr><tr><td>Financing Activities:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Long-term debt obligations \( ^{(5)} \)</td><td>8,020,061</td><td>1,555,869</td><td>2,515,563</td><td>1,968,898</td><td>1,979,731</td><td></td></tr><tr><td>Capital lease obligations \( ^{(6)} \)</td><td>54,743</td><td>7,509</td><td>11,176</td><td>6,536</td><td>29,522</td><td></td></tr><tr><td>Other \( ^{(7)} \)</td><td>80,011</td><td>27,787</td><td>37,929</td><td>12,322</td><td>1,973</td><td></td></tr><tr><td>Total</td><td>$14,167,329</td><td>$3,001,522</td><td>$6,036,087</td><td>$2,409,489</td><td>$2,720,231</td><td></td></tr></table>

(1) We are obligated under noncancelable operating leases primarily for a ship, offices, warehouses and motor vehicles.

(2) Under the Brilliance of the Seas lease agreement, we may be required to make a termination payment of approximately £65.4 million, or approximately $108.3 million based on the exchange rate at December 31, 2013, if the lease is canceled in 2020. This amount is included in the more than 5 years column. Interest on the Brilliance of the Seas lease agreement is calculated based on the applicable variable interest rate at December 31, 2013.
(3) Long-term debt obligations mature at various dates through fiscal year 2027 and bear interest at fixed and variable rates. Interest on variable-rate debt is calculated based on forecasted debt balances, including interest swapped using the applicable rate at December 31, 2013. Debt denominated in other currencies is calculated based on the applicable exchange rate at December 31, 2013.

(4) Amounts 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.

(5) Amounts represent debt obligations with initial terms in excess of one year.

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

(7) 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.

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

In July 2002, we entered into an operating lease denominated in British pound sterling for the Brilliance of the Seas. The lease payments vary based on sterling LIBOR and are included in Other operating expenses in our consolidated statements of comprehensive income (loss). Brilliance of the Seas lease expense amounts were approximately £12.3 million, £14.6 million and £15.9 million, or approximately $19.1 million, $23.3 million and $25.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. The lease has a contractual life of 25 years; however, both the lessor and we have certain rights to cancel the lease at year 18 (i.e., 2020) upon advance notice given approximately one year prior to cancellation. In the event of early termination at year 18, we have the option to cause the sale of the vessel at its fair value and to use the proceeds towards the applicable termination payment.

Alternatively, we could opt at such time to make a termination payment of approximately £65.4 million, or approximately $108.3 million based on the exchange rate at December 31, 2013 and relinquish our right to cause the sale of the vessel. Under current circumstances we do not believe early termination of this lease is probable.

Under the Brilliance of the Seas operating lease, we have agreed to indemnify the lessor to the extent its after-tax return is negatively impacted by unfavorable changes in corporate tax rates, capital allowance deductions and certain unfavorable determinations which may be made by United Kingdom tax authorities. These indemnifications could result in an increase in our lease payments. We are unable to estimate the maximum potential increase in our lease payments due to the various circumstances, timing or a combination of events that could trigger such indemnifications. The United Kingdom tax authorities are disputing the lessor's accounting treatment of the lease and the lessor and tax authorities are in discussions on the matter. If the characterization of the lease is ultimately determined to be incorrect, we could be required to indemnify the lessor under certain circumstances.



The lessor has advised us that they believe their characterization of the lease is correct. Based on the foregoing and our review of available information, we do not believe an indemnification payment is probable. However, if the lessor loses its dispute and we are required to indemnify the lessor, we cannot at this time predict the impact that such an occurrence would have on our financial condition and results of operations.

In connection with the sale of Celebrity Mercury in February 2011, we and TUI AG each guaranteed repayment of 50% of an €180.0 million amortizing bank loan provided to TUI Cruises which is due 2016. As of December 31, 2013, €135.0 million, or approximately $186.0 million based on the exchange rate at December 31, 2013, remains outstanding. Based on current facts and circumstances, we do not believe potential obligations under this guarantee are probable.

TUI Cruises entered into construction agreements with STX Finland that includes certain restrictions on each of our and TUI AG’s ability to reduce our current ownership interest in TUI Cruises below 37.5% through the construction periods for the first and second TUI newbuild vessels. In addition, the credit agreements for the financing of the ships extend this restriction through 2019.

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.

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. We have approximately $3.0 billion in contractual obligations due in 2014 of which approximately $1.6 billion relates to debt maturities and $934.5 million relates to the acquisition of Quantum of the Seas along with progress payments on our ship purchases. In addition, we have $11.2 billion in contractual obligations due beyond 2013 of which debt maturities and ship purchase obligations represent $6.5 billion and $2.8 billion, respectively. We have historically relied on a combination of cash flows provided by operations, drawdowns under our available credit facilities, 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.

We had a working capital deficit of $3.3 billion as of December 31, 2013 as compared to a working capital deficit of $3.2 billion as of December 31, 2012. Included within our working capital deficit is $1.6 billion and $1.5 billion of current portion of long-term debt as of December 31, 2013 and December 31, 2012, respectively. The increase in working capital deficit was primarily due to the increase in current maturities of long-term debt. 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 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 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, 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, 2013, we have approximately $8.1 billion in long-term debt obligations. During 2012 and 2013 we entered into a series of transactions to refinance our 2013 and 2014 bond maturities, reduce interest costs, improve financing terms and extend maturities. During 2013, we entered into a credit agreement, which provides an unsecured term loan facility in an amount up to $380.0 million due August 2018. We amended and restated our $525.0 million unsecured revolving credit facility to $850.0 million, reduced the pricing and extended the termination date to August 2018. In addition, we increased the capacity of our revolving credit facility due July 2016 by $20.0 million, bringing our total capacity under this facility to $1.1 billion. As of December 31, 2013, we have an aggregate revolving borrowing capacity of $2.0 billion. Refer to Note 7. Long-Term Debt to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information.

As of December 31, 2013, we had liquidity of $1.9 billion, consisting of approximately $204.7 million in cash and cash equivalents and $1.7 billion available under our unsecured credit facilities. 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. In January 2014, we repaid our €745.0 million 5.625% unsecured senior notes with proceeds from our $380.0 million unsecured term loan facility and our revolving credit facilities.

In 2013, we repurchased $21.0 million of our 11.875% unsecured senior notes due 2015. Total consideration paid in connection with these repurchases, including premium and related fees and expenses, was $24.9 million resulting in a loss on the early extinguishment of debt of approximately $4.2 million which was immediately recognized in earnings. We may from time to time repurchase our debt in the open market, through debt tender offers, exchanges of debt securities, by exercising redemption rights or in privately negotiated transactions. We may also refinance existing debt or exchange existing debt for newly issued debt obligations.

As of December 31, 2013, we have on order three Quantum-class ships and one Oasis-class ship each of which has committed unsecured bank financing arrangements which include sovereign financing guarantees. Refer to Note 15. Commitments and Contingencies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information.
We are in the process of implementing a broad profitability improvement program aimed at increasing revenues and reducing expenses with a goal of further improving our returns on invested capital. There are numerous initiatives in connection with this program that are at different stages of implementation. One of those initiatives relates to realizing economies of scale and improving service delivery to our travel partners and guests by restructuring and consolidating our global sales, marketing and general and administrative structure. During the third quarter of 2013, we moved forward with activities related to this initiative. A second initiative relates to Pullmantur's focus on the cruise business and expansion in Latin America. During the fourth quarter of 2013, we moved forward with activities related to this initiative. We expect to incur an estimated remaining amount of $32 million of cash outlays, mostly through the end of 2014, to complete these initiatives. We believe the cash outlays will be offset by increased cash inflows from the expected cost savings.

We also continue to implement a number of initiatives to reduce energy consumption and, by extension, fuel costs. These include the design of more fuel efficient ships and the implementation of other hardware and energy efficiencies.

If (i) any person other than A. Wilhelmsen AS. and Cruise Associates and their respective affiliates (the "Applicable Group") acquires ownership of more than 33% of our common stock and the Applicable Group owns less of our common stock than such person, or (ii) subject to certain exceptions, during any 24-month period, a majority of the Board is no longer comprised of individuals who were members of the Board on the first day of such period, we may be obligated to prepay indebtedness outstanding under the majority of our credit facilities, which we may be unable to replace on similar terms. Certain of our outstanding debt securities also contain change of control provisions that would be triggered by the acquisition of greater than 50% of our common stock by a person other than a member of the Applicable Group 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 financial covenants that require us, among other things, to maintain minimum net worth of at least $5.9 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 income (loss) on Total shareholders' equity. We are well in excess of all financial covenant requirements as of December 31, 2013. 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 2013, we declared a cash dividend on our common stock of $0.25 per share which was paid in the first quarter of 2014. We declared a cash dividend on our common stock of $0.25 per share during the third quarter of 2013 which was paid in the fourth quarter of 2013. We declared and paid a cash dividend on our common stock of $0.12 per share during the first and second quarters of 2013.

## ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

## FINANCIAL INSTRUMENTS AND OTHER

## General

We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We manage these risks through a combination of our normal operating and financing activities and through the use of derivative financial instruments pursuant to our hedging practices and policies. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the amount, term and conditions of the derivative instrument with the underlying risk being hedged. 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 monitor our derivative positions using techniques including market valuations and sensitivity analyses. (See Note 14. Fair Value Measurements and Derivative Instruments to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data.)

## Interest Rate Risk

Our exposure to market risk for changes in interest rates relates to our long-term debt obligations including future interest payments, and our operating lease for Brilliance of the Seas. At December 31, 2013, approximately 34.6% of our long-term debt was effectively fixed as compared to 45.8% as of December 31, 2012. We use interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense and rent expense.

Market risk associated with our long-term fixed-rate debt is the potential increase in fair value resulting from a decrease in interest rates. We use interest rate swap agreements that effectively convert a portion of our fixed-rate debt to a floating-rate basis to manage this risk. At December 31, 2013 and December 31, 2012, we maintained interest rate swap agreements on the $420.0 million fixed-rate portion of our Oasis of the Seas unsecured amortizing term loan. The interest rate swap agreements effectively changed the interest rate on the balance of the unsecured term loan, which was $280.0 million as of December 31, 2013, from a fixed rate of 5.41% to a LIBOR-based floating rate equal to LIBOR plus 3.87%, currently approximately 4.23%. In addition, during 2013, we entered into interest rate swap agreements that effectively changed the interest rate on the $650.0 million unsecured senior notes due 2022, from a fixed rate of 5.25% to a LIBOR-based floating rate equal to LIBOR plus 3.63%, currently approximately 3.87%. These interest rate swap agreements are accounted for as fair value hedges.

The estimated fair value of our long-term fixed-rate debt at December 31, 2013 was $3.3 billion, using quoted market prices, where available, or using the present value of expected future cash flows which incorporates risk profile. The fair value of our fixed to floating interest rate swap agreements was estimated to be a liability of $69.6 million as of December 31, 2013, based on the present value of expected future cash flows. A hypothetical one percentage point decrease in interest rates at December 31, 2013 would increase the fair value of our hedged and unhedged long-term fixed-rate debt by approximately $109.9 million and would increase the fair value of our fixed to floating interest rate swap agreements by $60.8 million.



Market risk associated with our long-term floating-rate debt is the potential increase in interest expense from an increase in interest rates. We use interest rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis to manage this risk. A hypothetical one percentage point increase in interest rates would increase our forecasted 2014 interest expense by approximately $48.6 million, assuming no change in foreign currency exchange rates.

At December 31, 2013 and December 31, 2012, we maintained interest rate swap agreements on a portion of the Celebrity Reflection unsecured amortizing term loan. Beginning April 2013, the interest rate swap agreements effectively converted the interest rate on the balance of the unsecured term loan, which was $600.0 million as of December 31, 2013, from a floating rate equal to LIBOR plus 0.40% to a fixed rate (including applicable margin) of 2.85% through the term of the loan. These interest rate swap agreements are accounted for as cash flow hedges. In addition, at December 31, 2013 and December 31, 2012, we maintained forward-starting interest rate swap agreements that hedge the anticipated unsecured amortizing term loans that will finance our purchase of Quantum of the Seas and Anthem of the Seas. Forward-starting interest rate swaps hedging the Quantum of the Seas loan will effectively convert the interest rate for $735.0 million of the anticipated loan balance from LIBOR plus 1.30% to a fixed rate of 3.74% (inclusive of margin) beginning in October 2014. Forward-starting interest rate swaps hedging the Anthem of the Seas loan will effectively convert the interest rate for $725.0 million of the anticipated loan balance from LIBOR plus 1.30% to a fixed rate of 3.86% (inclusive of margin) beginning in April 2015.

The fair value of our floating to fixed interest rate swap agreements was estimated to be an asset of $56.6 million as of December 31, 2013 based on the present value of expected future cash flows.

Market risk associated with our operating lease for Brilliance of the Seas is the potential increase in rent expense from an increase in sterling LIBOR rates. A hypothetical one percentage point increase in sterling LIBOR rates would increase our forecasted 2014 rent expense by approximately $2.6 million, based on the exchange rate at December 31, 2013.

## Foreign Currency Exchange Rate Risk

Our primary exposure to foreign currency exchange rate risk relates to our ship construction contracts denominated in Euros, our foreign currency denominated debt and our international business operations. We enter into foreign currency forward contracts, collar options and cross-currency swap agreements to manage portions of the exposure to movements in foreign currency exchange rates. The majority of our foreign currency forward contracts, collar options and cross-currency swap agreements are accounted for as cash flow or fair value hedges depending on the designation of the related hedge.

The estimated fair value as of December 31, 2013 of our Euro-denominated forward contracts associated with our ship construction contracts was an asset of $68.1 million, based on the present value of expected future cash flows. As of December 31, 2013, the aggregate cost of our ships on order was approximately $4.7 billion, of which we had disbursed $518.8 million as of such date. Approximately 36.3% and 49.7% of the aggregate cost of the ships under construction was exposed to fluctuations in the Euro exchange rate at December 31, 2013 and December 31, 2012, respectively. A hypothetical 10% strengthening of the Euro as of December 31, 2013, assuming no changes in comparative interest rates, would result in a $167.7 million increase in the United States dollar cost of the foreign currency denominated ship construction contracts exposed to fluctuations in the Euro exchange rate.

Our international business operations subject us to foreign currency exchange risk. We transact business in many different foreign currencies and maintain investments in foreign operations which may expose us to financial market risk resulting from fluctuations in foreign currency exchange rates. Movements in foreign currency exchange rates may affect the translated value of our earnings and cash flows. We manage most of this exposure on a consolidated basis, which allows us to take advantage of any natural offsets. Therefore, weakness in one particular currency might be offset by strengths in other currencies over time. Our earnings are also subject to volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than the United States dollar. To mitigate our foreign currency exchange rate exposure resulting from our net



foreign currency denominated monetary assets and liabilities, we denominate a portion of our debt in our subsidiaries' and investments' functional currencies, enter into foreign currency forward contracts and we have historically utilized cross-currency swap agreements.

During 2012, we entered into foreign currency collar options to hedge a portion of our foreign currency exposure on the construction contract price for Anthem of the Seas. These options mature in April 2015 and have an estimated fair value of $22.2 million at December 31, 2013. In addition, during 2013, we entered into foreign currency forward contracts to hedge $365.0 million of our €745.0 million 5.625% unsecured senior notes due January 2014. These foreign currency forward contracts are accounted for as cash flow hedges and mature January 2014.

We consider our investments in our foreign operations to be denominated in relatively stable currencies and of a long-term nature. We partially mitigate the exposure of our investments in foreign operations by denominating a portion of our debt in our subsidiaries' and investments' functional currencies and designating it as a hedge of these subsidiaries and investments. We had designated debt as a hedge of our net investments in Pullmantur and TUI Cruises of approximately €544.9 million and €481.7 million, or approximately $750.8 million and $635.1 million, through December 31, 2013 and 2012, respectively. Accordingly, we have included approximately $44.4 million and $10.1 million of foreign-currency transaction losses in the foreign currency translation adjustment component of Accumulated other comprehensive income (loss) at December 31, 2013 and December 31, 2012, respectively. A hypothetical 10% increase or decrease in the December 31, 2013 Euro exchange rate would increase or decrease the fair value of our assigned debt by $167.8 million, which would be offset by a corresponding decrease or increase in the United States dollar value of our net investment.

Lastly, on a regular basis, we enter into foreign currency forward contracts to minimize volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than our functional currency or the functional currencies of our foreign subsidiaries. During 2013, we maintained an average of approximately $406.7 million of these foreign currency forward contracts. These instruments are not designated as hedging instruments. Changes in the fair value of the foreign currency forward contracts were losses of approximately $19.3 million, which offset gains arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies of $13.4 million for the year ended December 31, 2013. Changes in the fair value of the foreign currency forward contracts were gains of approximately $7.7 million, which offset losses arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies of $11.8 million for the year ended December 31, 2012. Changes in the fair value of the foreign currency forward contracts were losses of approximately $1.1 million and losses arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies of $1.6 million, which resulted in a total loss of $2.7 million for the year ended December 31, 2011. These changes were recognized in earnings within Other (expense) income in our consolidated statements of comprehensive income (loss).

## Fuel Price Risk

Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our ships. Fuel cost (net of the financial impact of fuel swap agreements), as a percentage of our total revenues, was approximately 11.6% in 2013, 11.8% in 2012 and 10.1% in 2011. We use a range of instruments including fuel swap agreements and fuel call options to mitigate the financial impact of fluctuations in fuel prices.

As of December 31, 2013, we had fuel swap agreements to pay fixed prices for fuel with an aggregate notional amount of approximately $1.2 billion, maturing through 2017. The fuel swap agreements represent 57% of our projected 2014 fuel requirements, 45% of our projected 2015 fuel requirements, 25% of our projected 2016 fuel requirements and 5% of our projected 2017 fuel requirements. These fuel swap agreements are accounted for as cash flow hedges. The estimated fair value of these contracts at December 31, 2013 was estimated to be an asset of $8.5 million. We estimate that a hypothetical 10% increase in our weighted-average fuel price from that experienced during the year ended December 31, 2013 would increase our forecasted 2014 fuel cost by approximately $40.9 million, net of the impact of fuel swap agreements.

## ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Consolidated Financial Statements and Quarterly Selected Financial Data are included beginning on page 70 of this report.



## ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

## ITEM 9A. CONTROLS AND PROCEDURES

## EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Chairman and Chief Executive Officer and Senior Vice President, Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based upon such evaluation, our Chairman and Chief Executive Officer and Senior Vice President, Chief Financial Officer concluded that those controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chairman and Chief Executive Officer and our Senior Vice President, Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.

## MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management, with the participation of our Chairman and Chief Executive Officer and our Senior Vice President, Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2013. The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, the independent registered certified public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, as stated in its report, which is included herein on page 71.

## CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

## ITEM 9B. OTHER INFORMATION

None.



## PART III

ITEMS 10, 11, 12, 13 AND 14. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE AND PRINCIPAL ACCOUNTANT FEES AND SERVICES

Except for information concerning executive officers (called for by Item 401(b) of Regulation S-K), which is included in Part I of this Annual Report on Form 10-K, the information required by Items 10, 11, 12, 13 and 14 is incorporated herein by reference to the Royal Caribbean Cruises Ltd. definitive proxy statement (the "Proxy Statement") to be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year. Please refer to the following sections in the Proxy Statement for more information regarding our corporate governance: "Corporate Governance"; "Proposal 1—Election of Directors"; and "Certain Relationships and Related Party Transactions." Copies of the Proxy Statement will become available when filed through our Investor Relations website at www.rclinvestor.com (please see "Financial Reports" under "Financial Information"); by contacting our Investor Relations department at 1050 Caribbean Way, Miami, Florida 33132—telephone (305) 982-2625; or by visiting the SEC's website at www.sec.gov.

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, including our executive officers, and our directors. This document is posted on our website at www.rclinvestor.com. None of the websites referenced in this Annual Report on Form 10-K or the information contained therein is incorporated herein by reference.

## PART IV

## ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

Our Consolidated Financial Statements have been prepared in accordance with Item 8. Financial Statements and Supplementary Data and are included beginning on page 70 of this report.

(2) Financial Statement Schedules

None.

(3) Exhibits

The exhibits listed on the accompanying Index to Exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K and such Index to Exhibits is hereby incorporated herein by reference.



## SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ROYAL CARIBBEAN CRUISES LTD.
(Registrant)

By: /s/ JASON T. LIBERTY
Jason T. Liberty
Senior Vice President, Chief Financial Officer
(Principal Financial Officer and duly
authorized signatory)

February 20, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 20, 2014.

/s/ RICHARD D. FAIN
Richard D. Fain
Director, Chairman and Chief Executive Officer
(Principal Executive Officer)

/s/ JASON T. LIBERTY
Jason T. Liberty
Senior Vice President, Chief Financial Officer
(Principal Financial Officer)

/s/ HENRY L. PUJOL
Henry L. Pujol
Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer)

Bernard W. Aronson
Director

John F. Brock
Director

William L. Kimsey
Director

Ann S. Moore
Director

*  
*  
*  
*  
*  
*  
*  
*  
*  
*  
*  

*By: /s/ JASON T. LIBERTY
Jason T. Liberty, as Attorney-in-Fact



# INDEX TO EXHIBITS

Exhibits 10.16 through 10.33 represent management compensatory plans or arrangements.

Exhibit Description

3.1 —Restated Articles of Incorporation of the Company, as amended (composite) (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-3, File No. 333-158161, filed with the Securities and Exchange Commission (the "Commission")) on March 23, 2009.

3.2 —Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 11, 2013).

4.1 —Indenture dated as of July 15, 1994 between the Company, as issuer, and The Bank of New York Trust Company, N.A., successor to NationsBank of Georgia, National Association, as Trustee (incorporated by reference to Exhibit 2.4 to the Company’s 1994 Annual Report on Form 20-F, File No. 1-11884).

4.2 —Sixth Supplemental Indenture dated as of October 14, 1997 to Indenture dated as of July 15, 1994 between the Company, as issuer, and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 2.11 to the Company’s 1997 Annual Report on Form 20-F, File No. 1-11884).

4.3 —Eighth Supplemental Indenture dated as of March 16, 1998 to Indenture dated as of July 15, 1994 between the Company, as issuer, and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 2.13 to the Company’s 1997 Annual Report on Form 20-F, File No. 1-11884).

4.4 —Fifteenth Supplemental Indenture dated as of June 12, 2006 to Indenture dated as of July 15, 1994 between the Company, as issuer, and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.14 to the Company’s 2006 Annual Report on Form 10-K).

4.5 —Form of Indenture dated as of July 31, 2006 between the Company, as issuer, and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 333-136186) filed with the Commission on July 31, 2006).
Exhibit Description

4.6 —First Supplemental Indenture dated as of July 6, 2009 between the Company, as issuer, and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 2, 2009).

4.7 —Second Supplemental Indenture dated as of November 7, 2012 between the Company, as issuer, and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on November 7, 2012).

10.1 —Amended and Restated Registration Rights Agreement dated as of July 30, 1997 among the Company, A. Wilhelmsen AS., Cruise Associates, Monument Capital Corporation, Archinav Holdings, Ltd. and Overseas Cruise-ship, Inc. (incorporated by reference to Exhibit 2.20 to the Company's 1997 Annual Report on Form 20-F, File No. 1-11884).

10.2 —Assignment and Amendment to the US$875,000,000 Amended and Restated Credit Agreement dated as of July 15, 2011 among the Company, the various financial institutions party thereto and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 19, 2011).

10.3 —Assignment and Amendment to the Credit Agreement, dated as of August 23, 2013, among the Company, the various financial institutions as are or shall become parties thereto and Nordea Bank Finland plc, New York Branch, as administrative agent for the lender parties (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 26, 2013).

10.4 —Assignment and Amendment Deed to Hull No. 679 Credit Agreement, dated as of February 17, 2012, among Celebrity Silhouette Inc., the Company and KfW IPEX-Bank GmbH, in its capacity as agent for Hermes, administrative agent and lender (incorporated by reference to Exhibit 10.5 to the Company’s 2011 Annual Report on Form 10-K).



# INDEX TO EXHIBITS

<table><tr><td>Exhibit</td><td>Description</td><td>Exhibit</td><td>Description</td></tr><tr><td>10.5</td><td>—Assignment and Amendment Deed to Hull No. 691 Credit Agreement, dated as of February 17, 2012, among Celebrity Solstice V Inc., the Company and KfW IPEX-Bank GmbH, in its capacity as agent for Hermes, administrative agent and lender (incorporated by reference to Exhibit 10.6 to the Company&#x27;s 2011 Annual Report on Form 10-K).</td><td>10.10</td><td>—Facility Agreement, dated as of July 9, 2013, between the Company, as the Borrower, the Lenders from time to time party thereto, Société Générale, as Facility Agent and Mandated Lead Arranger, BNP Paribas, as Documentation Bank and Mandated Lead Arranger, and HSBC France, as Mandated Lead Arranger (incorporated by reference to Exhibit 10.1 to the Company&#x27;s Current Report on Form 8-K filed on July 12, 2013).</td></tr><tr><td>10.6</td><td>—Assignment and Amendment No. 4 to Credit Agreement, dated as of March 26, 2012, among Oasis of the Seas Inc., Royal Caribbean Cruises Ltd., the various financial institutions as are parties to the Credit Agreement and BNP Paribas, as administrative agent (incorporated by reference to Exhibit 10.1 to the Company&#x27;s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012).</td><td>10.11</td><td>—Hull No. S-699 Credit Agreement, dated as of November 27, 2013, between the Company, as the Borrower, the Lenders from time to time party thereto and KfW IPEX-Bank GmbH, as Hermes Agent, Facility Agent and Initial Mandated Lead Arranger (incorporated by reference to Exhibit 10.1 to the Company&#x27;s Current Report on Form 8-K filed on December 3, 2013).</td></tr><tr><td>10.7</td><td>—Assignment and Amendment No. 4 to Credit Agreement, dated as of March 26, 2012, among Allure of the Seas Inc., Royal Caribbean Cruises Ltd., the various financial institutions as are parties to the Credit Agreement and Skandinaviska Enskilda Banken AB, as administrative agent (incorporated by reference to Exhibit 10.1 to the Company&#x27;s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012).</td><td>10.12</td><td>—Office Building Lease Agreement dated July 25, 1989 between Miami-Dade County and the Company, as amended (incorporated by reference to Exhibits 10.116 and 10.117 to the Company&#x27;s Registration Statement on Form F-1, File No. 33-46157, filed with the Commission and Exhibit 10.1 to the Company&#x27;s Current Report on Form 8-K filed on August 5, 2011).</td></tr><tr><td>10.8</td><td>—Hull No. S-697 Credit Agreement, dated as of June 8, 2011, between Company, the Lenders from time to time party thereto and KfW IPEX-Bank GmbH, as Hermes Agent, Facility Agent and Initial Mandated Lead Arranger, as amended on February 17, 2012 and May 10, 2012 (incorporated by reference to Exhibit 10.1 to the Company&#x27;s Quarterly Report on Form 10-Q for the Quarterly Period ended June 30, 2012).</td><td>10.13</td><td>—Office Building Lease Agreement dated January 18, 1994 between Miami-Dade County and the Company (incorporated by reference to Exhibit 2.13 to the Company&#x27;s 1993 Annual Report on Form 20-F, File No. 1-11884 and Exhibit 10.2 to the Company&#x27;s Current Report on Form 8-K filed on August 5, 2011).</td></tr><tr><td>10.9</td><td>—Amendment Agreement in connection with the Credit Agreement in respect of Hull No. S-698, dated as of February 17, 2012, between the Company, the Lenders from time to time party thereto and KfW IPEX-Bank GmbH, as Hermes Agent, Facility Agent and Initial Mandated Lead Arranger (incorporated by reference to Exhibit 10.10 to the Company&#x27;s 2011 Annual Report on Form 10-K).</td><td>10.14</td><td>—Multi-Tenant Office Lease Agreement dated May 3, 2000, as amended through January 26, 2010, between the Company and RT Miramar II, LLC (incorporated by reference to Exhibit 4.6 to the Company&#x27;s 2003 Annual Report on Form 20-F and Exhibit 10.17 to the Company&#x27;s 2009 Annual Report on Form 10-K).</td></tr><tr><td>10.15</td><td>—Lease Agreement dated January 24, 2005, as amended through March 20, 2006, between the Company and RC Springfield 2007, LLC (formerly Workstage-Oregon, LLC) (incorporated by reference to Exhibit 10.7 to the Company&#x27;s 2004 Annual Report on Form 10-K, Exhibit 10.2 to the Company&#x27;s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 and Exhibit 10.12 to the Company&#x27;s 2007 Annual Report on Form 10-K).</td><td>10.15</td><td>—Lease Agreement dated January 24, 2005, as amended through March 20, 2006, between the Company and RC Springfield 2007, LLC (formerly Workstage-Oregon, LLC) (incorporated by reference to Exhibit 10.7 to the Company&#x27;s 2004 Annual Report on Form 10-K, Exhibit 10.2 to the Company&#x27;s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 and Exhibit 10.12 to the Company&#x27;s 2007 Annual Report on Form 10-K).</td></tr></table>



## INDEX TO EXHIBITS

Exhibit Description

10.16 —Royal Caribbean Cruises Ltd. 2000 Stock Award Plan, as amended and restated through September 18, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 8, 2005 and Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with Commission on September 22, 2006).

10.17 —Royal Caribbean Cruises Ltd. 2008 Equity Incentive Plan, as amended by Amendment No. 1 dated as of May 20, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 and Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 3Q, 2010).

10.18 —Form of Royal Caribbean Cruises Ltd. 2008 Equity Incentive Plan Stock Option Award Agreement—Incentive Options (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008).

10.19 —Form of Royal Caribbean Cruises Ltd. 2008 Equity Incentive Plan Stock Option Award Agreement—Nonqualified shares (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008).

10.20 —Form of Royal Caribbean Cruises Ltd. 2008 Equity Incentive Plan Restricted Stock Unit Agreement for grants made in 2010, 2011, 2012 and 2013 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008).

10.21 —Form of Royal Caribbean Cruises Ltd. 2008 Equity Incentive Plan Restricted Stock Unit Agreement—Director Grants (incorporated by reference to Exhibit 10.31 to the Company’s 2010 Annual Report on Form 10-K).

10.22 —Form of Royal Caribbean Cruises Ltd. 2008 Equity Incentive Plan Performance Share Agreement for grants made in 2012 and 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on February 22, 2012).
Exhibit Description

10.23 —Form of Royal Caribbean Cruises Ltd. 2008 Equity Incentive Plan Restricted Stock Unit Agreement for grants made in 2014 \( ^{*} $ 

10.24 —Form of Royal Caribbean Cruises Ltd. 2008 Equity Incentive Plan Performance Share Agreement for grants made in 2014 \( ^{*} $ 

10.25 —Employment Agreement dated December 31, 2012 between the Company and Richard D. Fain (incorporated by reference to Exhibit 10.22 to the Company’s 2012 Annual Report on Form 10-K).

10.26 —Employment Agreement dated December 31, 2012 between the Company and Adam M. Goldstein (incorporated by reference to Exhibit 10.23 to the Company’s 2012 Annual Report on Form 10-K).

10.27 —Employment Agreement dated December 31, 2012 between Celebrity Cruises Inc. and Michael W. Bayley (incorporated by reference to Exhibit 10.24 to the Company’s 2012 Annual Report on Form 10-K).

10.28 —Employment Agreement dated December 31, 2012 between the Company and Brian J. Rice (incorporated by reference to Exhibit 10.25 to the Company’s 2012 Annual Report on Form 10-K).

10.29 —Employment Agreement dated December 31, 2012 between the Company and Harri U. Kulovaara (incorporated by reference to Exhibit 10.26 to the Company’s 2012 Annual Report on Form 10-K).

10.30 —Employment Agreement dated May 20, 2013 between the Company and Jason T. Liberty (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013).

10.31 —Royal Caribbean Cruises Ltd. Executive Short-Term Bonus Plan dated as of September 12, 2008, as amended (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011).



## INDEX TO EXHIBITS

Exhibit Description

10.32 —Royal Caribbean Cruises Ltd. et. al. Non Qualified Deferred Compensation Plan, formerly Royal Caribbean Cruises Ltd. et. al. Non Qualified 401(k) Plan, as amended through November 11, 2008 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on December 8, 2005, Exhibit 10.29 to the Company’s 2006 Annual Report on Form 10-K, Exhibit 10.28 to the Company’s 2007 Annual Report on Form 10-K, Exhibit 10.29 to the Company’s 2007 Annual Report on Form 10-K and Exhibit 10.36 to the Company’s 2008 Annual Report on Form 10-K).

10.33 —Royal Caribbean Cruises Ltd. Supplemental Executive Retirement Plan as amended through November 11, 2008 (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the Commission on December 8, 2005, Exhibit 10.31 to the Company's 2006 Annual Report on Form 10-K, Exhibit 10.31 to the Company's 2007 Annual Report on Form 10-K, Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008 and Exhibit 10.38 to the Company's Annual Report on Form 10-K).

10.34 —Summary of Royal Caribbean Cruises Ltd. Board of Directors Compensation (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013).

10.35 —Cruise Policy for Members of the Board of Directors of the Company \( ^{*} $ 

12.1 —Statement regarding computation of fixed charge coverage ratio \( ^{*} $ 

21.1 —List of Subsidiaries \( ^{*} $ 

23.1 —Consent of PricewaterhouseCoopers LLP, an independent registered certified public accounting firm \( ^{*} $ 

23.2 —Consent of Drinker Biddle & Reath LLP \( ^{*} $ 

24.1 —Power of Attorney \( ^{*} \) 

Exhibit Description

31.1 —Certification of Richard D. Fain required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 \( ^{*} $ 

31.2 —Certification of Jason T. Liberty required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 \( ^{*} $ 

32.1 —Certification of Richard D. Fain and Jason T. Liberty pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code**

*Filed herewith
**Furnished herewith

Interactive Data File
101 —The following financial statements from Royal Caribbean Cruises Ltd.'s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on February 20, 2014, formatted in XBRL, as follows:

(i) the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013, 2012 and 2011;

(ii) the Consolidated Balance Sheets at December 31, 2013 and 2012;

(iii) the Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011;

(iv) the Consolidated Statements of Shareholders' Equity for the years ended December 31, 2013, 2012 and 2011; and

(v) the Notes to the Consolidated Financial Statements, tagged in summary and detail.



## INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Certified Public Accounting Firm ..... 71
Consolidated Statements of Comprehensive Income (Loss) ..... 72
Consolidated Balance Sheets ..... 73
Consolidated Statements of Cash Flows ..... 74
Consolidated Statements of Shareholders' Equity ..... 75
Notes to the Consolidated Financial Statements ..... 76



# REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

## TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF ROYAL CARIBBEAN CRUISES, LTD.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income (loss), cash flows and shareholders' equity present fairly, in all material respects, the financial position of Royal Caribbean Cruises, Ltd. and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
February 20, 2014



## CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

<table><tr><td>Year Ended December 31, (in thousands, except per share data)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Passenger ticket revenues</td><td>$5,722,718</td><td>$5,594,595</td><td>$5,525,904</td></tr><tr><td>Onboard and other revenues</td><td>2,237,176</td><td>2,093,429</td><td>2,011,359</td></tr><tr><td>Total revenues</td><td>7,959,894</td><td>7,688,024</td><td>7,537,263</td></tr><tr><td>Cruise operating expenses:</td><td></td><td></td><td></td></tr><tr><td>Commissions, transportation and other</td><td>1,314,595</td><td>1,289,255</td><td>1,299,713</td></tr><tr><td>Onboard and other</td><td>568,615</td><td>529,453</td><td>535,501</td></tr><tr><td>Payroll and related</td><td>841,737</td><td>828,198</td><td>825,676</td></tr><tr><td>Food</td><td>469,653</td><td>449,649</td><td>424,308</td></tr><tr><td>Fuel</td><td>924,414</td><td>909,691</td><td>764,758</td></tr><tr><td>Other operating</td><td>1,186,256</td><td>1,151,188</td><td>1,092,651</td></tr><tr><td>Total cruise operating expenses</td><td>5,305,270</td><td>5,157,434</td><td>4,942,607</td></tr><tr><td>Marketing, selling and administrative expenses</td><td>1,044,819</td><td>1,011,543</td><td>960,602</td></tr><tr><td>Depreciation and amortization expenses</td><td>754,711</td><td>730,493</td><td>702,426</td></tr><tr><td>Impairment of Pullmantur related assets</td><td>—</td><td>385,444</td><td>—</td></tr><tr><td>Restructuring and related impairment charges</td><td>56,946</td><td>—</td><td>—</td></tr><tr><td></td><td>7,161,746</td><td>7,284,914</td><td>6,605,635</td></tr><tr><td>Operating Income</td><td>798,148</td><td>403,110</td><td>931,628</td></tr><tr><td>Other income (expense):</td><td></td><td></td><td></td></tr><tr><td>Interest income</td><td>13,898</td><td>21,331</td><td>25,318</td></tr><tr><td>Interest expense, net of interest capitalized</td><td>(332,422)</td><td>(355,785)</td><td>(382,416)</td></tr><tr><td>Extinguishment of unsecured senior notes</td><td>(4,206)</td><td>(7,501)</td><td>—</td></tr><tr><td>Other (expense) income (including $28.5 million net deferred tax expense related to impairments in 2012)</td><td>(1,726)</td><td>(42,868)</td><td>32,891</td></tr><tr><td></td><td>(324,456)</td><td>(384,823)</td><td>(324,207)</td></tr><tr><td>Net Income</td><td>$473,692</td><td>$18,287</td><td>$607,421</td></tr><tr><td>Basic Earnings per Share:</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$2.16</td><td>$0.08</td><td>$2.80</td></tr><tr><td>Diluted Earnings per Share:</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$2.14</td><td>$0.08</td><td>$2.77</td></tr><tr><td>Comprehensive Income (Loss)</td><td></td><td></td><td></td></tr><tr><td>Net Income</td><td>$473,692</td><td>$18,287</td><td>$607,421</td></tr><tr><td>Other comprehensive income (loss):</td><td></td><td></td><td></td></tr><tr><td>Foreign currency translation adjustments</td><td>1,529</td><td>(2,764)</td><td>(18,200)</td></tr><tr><td>Change in defined benefit plans</td><td>10,829</td><td>(4,567)</td><td>(6,698)</td></tr><tr><td>Change related to cash flow derivative hedges</td><td>127,829</td><td>(51,247)</td><td>(76,106)</td></tr><tr><td>Total other comprehensive income (loss)</td><td>140,187</td><td>(58,578)</td><td>(101,004)</td></tr><tr><td>Comprehensive Income (Loss)</td><td>$613,879</td><td>$(40,291)</td><td>$506,417</td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



## CONSOLIDATED BALANCE SHEETS

<table><tr><td>(in thousands, except share data)</td><td></td><td>2013</td><td>2012</td></tr><tr><td>Assets</td><td></td><td></td><td></td></tr><tr><td>Current assets</td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 204,687</td><td>$ 194,855</td><td></td></tr><tr><td>Trade and other receivables, net</td><td>259,746</td><td>281,421</td><td></td></tr><tr><td>Inventories</td><td>151,244</td><td>146,295</td><td></td></tr><tr><td>Prepaid expenses and other assets</td><td>252,852</td><td>207,662</td><td></td></tr><tr><td>Derivative financial instruments</td><td>87,845</td><td>57,827</td><td></td></tr><tr><td>Total current assets</td><td>956,374</td><td>888,060</td><td></td></tr><tr><td>Property and equipment, net</td><td>17,517,752</td><td>17,451,034</td><td></td></tr><tr><td>Goodwill</td><td>439,231</td><td>432,975</td><td></td></tr><tr><td>Other assets</td><td>1,159,590</td><td>1,055,861</td><td></td></tr><tr><td></td><td>$20,072,947</td><td>$19,827,930</td><td></td></tr><tr><td>Liabilities and Shareholders&#x27; Equity</td><td></td><td></td><td></td></tr><tr><td>Current liabilities</td><td></td><td></td><td></td></tr><tr><td>Current portion of long-term debt</td><td>$ 1,563,378</td><td>$ 1,519,483</td><td></td></tr><tr><td>Accounts payable</td><td>372,226</td><td>351,587</td><td></td></tr><tr><td>Accrued interest</td><td>103,025</td><td>106,366</td><td></td></tr><tr><td>Accrued expenses and other liabilities</td><td>563,702</td><td>541,722</td><td></td></tr><tr><td>Customer deposits</td><td>1,664,679</td><td>1,546,993</td><td></td></tr><tr><td>Total current liabilities</td><td>4,267,010</td><td>4,066,151</td><td></td></tr><tr><td>Long-term debt</td><td>6,511,426</td><td>6,970,464</td><td></td></tr><tr><td>Other long-term liabilities</td><td>486,246</td><td>482,566</td><td></td></tr><tr><td>Commitments and contingencies (Note 15)</td><td></td><td></td><td></td></tr><tr><td>Shareholders&#x27; equity</td><td></td><td></td><td></td></tr><tr><td>Preferred stock ($0.01 par value; 20,000,000 shares authorized; none outstanding)</td><td>—</td><td>—</td><td></td></tr><tr><td>Common stock ($0.01 par value; 500,000,000 shares authorized; 230,782,315 and 229,080,109 shares issued, December 31, 2013 and December 31, 2012, respectively)</td><td>2,308</td><td>2,291</td><td></td></tr><tr><td>Paid-in capital</td><td>3,159,038</td><td>3,109,887</td><td></td></tr><tr><td>Retained earnings</td><td>6,054,952</td><td>5,744,791</td><td></td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td>5,671</td><td>(134,516)</td><td></td></tr><tr><td>Treasury stock (10,308,683 common shares at cost, December 31, 2013 and December 31, 2012)</td><td>(413,704)</td><td>(413,704)</td><td></td></tr><tr><td>Total shareholders&#x27; equity</td><td>8,808,265</td><td>8,308,749</td><td></td></tr><tr><td></td><td>$20,072,947</td><td>$19,827,930</td><td></td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



## CONSOLIDATED STATEMENTS OF CASH FLOWS

<table><tr><td>(in thousands)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Operating Activities</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 473,692</td><td>$ 18,287</td><td>$ 607,421</td></tr><tr><td>Adjustments:</td><td></td><td></td><td></td></tr><tr><td>Depreciation and amortization</td><td>754,711</td><td>730,493</td><td>702,426</td></tr><tr><td>Impairment of Pullmantur related assets</td><td>—</td><td>385,444</td><td>—</td></tr><tr><td>Restructuring related impairments</td><td>33,514</td><td>—</td><td>—</td></tr><tr><td>Net deferred tax expense related to Pullmantur impairment</td><td>—</td><td>28,488</td><td>—</td></tr><tr><td>Loss (gain) on derivative instruments not designated as hedges</td><td>19,287</td><td>(2,014)</td><td>(18,920)</td></tr><tr><td>Loss on extinguishment of unsecured senior notes</td><td>4,206</td><td>7,501</td><td>—</td></tr><tr><td>Changes in operating assets and liabilities:</td><td></td><td></td><td></td></tr><tr><td>Decrease in trade and other receivables, net</td><td>95,401</td><td>8,026</td><td>87,872</td></tr><tr><td>Increase in inventories</td><td>(4,321)</td><td>(1,645)</td><td>(18,423)</td></tr><tr><td>Increase in prepaid expenses and other assets</td><td>(22,657)</td><td>(1,614)</td><td>(17,052)</td></tr><tr><td>Increase in accounts payable</td><td>18,957</td><td>36,602</td><td>56,755</td></tr><tr><td>Decrease in accrued interest</td><td>(3,341)</td><td>(15,786)</td><td>(28,553)</td></tr><tr><td>(Decrease) increase in accrued expenses and other liabilities</td><td>(6,714)</td><td>33,060</td><td>25,318</td></tr><tr><td>Increase in customer deposits</td><td>37,077</td><td>103,733</td><td>19,482</td></tr><tr><td>Cash received on settlement of derivative financial instruments</td><td>—</td><td>69,684</td><td>12,200</td></tr><tr><td>Dividends received from unconsolidated affiliates</td><td>5,093</td><td>—</td><td>21,147</td></tr><tr><td>Other, net</td><td>7,163</td><td>(18,525)</td><td>6,066</td></tr><tr><td>Net cash provided by operating activities</td><td>1,412,068</td><td>1,381,734</td><td>1,455,739</td></tr><tr><td>Investing Activities</td><td></td><td></td><td></td></tr><tr><td>Purchases of property and equipment</td><td>(763,777)</td><td>(1,291,499)</td><td>(1,173,626)</td></tr><tr><td>Cash (paid) received on settlement of derivative financial instruments</td><td>(17,338)</td><td>(10,886)</td><td>16,307</td></tr><tr><td>Investments in unconsolidated affiliates</td><td>(70,626)</td><td>—</td><td>(110,660)</td></tr><tr><td>Cash payments received on loan to unconsolidated affiliate</td><td>23,372</td><td>23,512</td><td>—</td></tr><tr><td>Proceeds from sale of ships</td><td>—</td><td>9,811</td><td>345,000</td></tr><tr><td>Other, net</td><td>3,831</td><td>5,739</td><td>(1,586)</td></tr><tr><td>Net cash used in investing activities</td><td>(824,538)</td><td>(1,263,323)</td><td>(924,565)</td></tr><tr><td>Financing Activities</td><td></td><td></td><td></td></tr><tr><td>Debt proceeds</td><td>2,449,464</td><td>2,558,474</td><td>1,578,368</td></tr><tr><td>Debt issuance costs</td><td>(57,622)</td><td>(75,839)</td><td>(84,381)</td></tr><tr><td>Repayments of debt</td><td>(2,856,481)</td><td>(2,561,290)</td><td>(2,179,046)</td></tr><tr><td>Dividends paid</td><td>(143,629)</td><td>(117,707)</td><td>(21,707)</td></tr><tr><td>Proceeds from exercise of common stock options</td><td>30,125</td><td>15,146</td><td>19,463</td></tr><tr><td>Other, net</td><td>1,517</td><td>1,599</td><td>10,788</td></tr><tr><td>Net cash used in financing activities</td><td>(576,626)</td><td>(179,617)</td><td>(676,515)</td></tr><tr><td>Effect of exchange rate changes on cash</td><td>(1,072)</td><td>(6,125)</td><td>(12,402)</td></tr><tr><td>Net increase (decrease) in cash and cash equivalents</td><td>9,832</td><td>(67,331)</td><td>(157,743)</td></tr><tr><td>Cash and cash equivalents at beginning of year</td><td>194,855</td><td>262,186</td><td>419,929</td></tr><tr><td>Cash and cash equivalents at end of year</td><td>$ 204,687</td><td>$ 194,855</td><td>$ 262,186</td></tr><tr><td>Supplemental Disclosures</td><td></td><td></td><td></td></tr><tr><td>Cash paid during the year for:</td><td></td><td></td><td></td></tr><tr><td>Interest, net of amount capitalized</td><td>$ 319,476</td><td>$ 341,047</td><td>$ 360,892</td></tr><tr><td>Non-cash Investing Activities</td><td></td><td></td><td></td></tr><tr><td>Purchase of property and equipment through asset trade-in</td><td>$ 46,375</td><td>$ —</td><td>$ —</td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



## CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<table><tr><td>(in thousands)</td><td>Common Stock</td><td>Paid-in Capital</td><td>Retained Earnings</td><td>Accumulated Other Comprehensive Income (Loss)</td><td>Treasury Stock</td><td>Total Shareholders&#x27; Equity</td></tr><tr><td>Balances at January 1, 2011</td><td>$2,262</td><td>$3,027,130</td><td>$5,259,998</td><td>$ 25,066</td><td>$ (413,704)</td><td>$7,900,752</td></tr><tr><td>Issuance under employee related plans</td><td>14</td><td>44,629</td><td>—</td><td>—</td><td>—</td><td>44,643</td></tr><tr><td>Common Stock dividends</td><td>—</td><td>—</td><td>(43,435)</td><td>—</td><td>—</td><td>(43,435)</td></tr><tr><td>Dividends declared by Pullmantur Air, S.A. \( ^{(1)} \)</td><td>—</td><td>—</td><td>(554)</td><td>—</td><td>—</td><td>(554)</td></tr><tr><td>Changes related to cash flow derivative hedges</td><td>—</td><td>—</td><td>—</td><td>(76,106)</td><td>—</td><td>(76,106)</td></tr><tr><td>Change in defined benefit plans</td><td>—</td><td>—</td><td>—</td><td>(6,698)</td><td>—</td><td>(6,698)</td></tr><tr><td>Foreign currency translation adjustments</td><td>—</td><td>—</td><td>—</td><td>(18,200)</td><td>—</td><td>(18,200)</td></tr><tr><td>Net income</td><td>—</td><td>—</td><td>607,421</td><td>—</td><td>—</td><td>607,421</td></tr><tr><td>Balances at December 31, 2011</td><td>2,276</td><td>3,071,759</td><td>5,823,430</td><td>(75,938)</td><td>(413,704)</td><td>8,407,823</td></tr><tr><td>Issuance under employee related plans</td><td>15</td><td>38,128</td><td>—</td><td>—</td><td>—</td><td>38,143</td></tr><tr><td>Common Stock dividends</td><td>—</td><td>—</td><td>(95,979)</td><td>—</td><td>—</td><td>(95,979)</td></tr><tr><td>Dividends declared by Pullmantur Air, S.A. \( ^{(1)} \)</td><td>—</td><td>—</td><td>(947)</td><td>—</td><td>—</td><td>(947)</td></tr><tr><td>Changes related to cash flow derivative hedges</td><td>—</td><td>—</td><td>—</td><td>(51,247)</td><td>—</td><td>(51,247)</td></tr><tr><td>Change in defined benefit plans</td><td>—</td><td>—</td><td>—</td><td>(4,567)</td><td>—</td><td>(4,567)</td></tr><tr><td>Foreign currency translation adjustments</td><td>—</td><td>—</td><td>—</td><td>(2,764)</td><td>—</td><td>(2,764)</td></tr><tr><td>Net income</td><td>—</td><td>—</td><td>18,287</td><td>—</td><td>—</td><td>18,287</td></tr><tr><td>Balances at December 31, 2012</td><td>2,291</td><td>3,109,887</td><td>5,744,791</td><td>(134,516)</td><td>(413,704)</td><td>8,308,749</td></tr><tr><td>Issuance under employee related plans</td><td>17</td><td>49,151</td><td>—</td><td>—</td><td>—</td><td>49,168</td></tr><tr><td>Common Stock dividends</td><td>—</td><td>—</td><td>(162,727)</td><td>—</td><td>—</td><td>(162,727)</td></tr><tr><td>Dividends declared by Pullmantur Air, S.A. \( ^{(1)} \)</td><td>—</td><td>—</td><td>(804)</td><td>—</td><td>—</td><td>(804)</td></tr><tr><td>Changes related to cash flow derivative hedges</td><td>—</td><td>—</td><td>—</td><td>127,829</td><td>—</td><td>127,829</td></tr><tr><td>Change in defined benefit plans</td><td>—</td><td>—</td><td>—</td><td>10,829</td><td>—</td><td>10,829</td></tr><tr><td>Foreign currency translation adjustments</td><td>—</td><td>—</td><td>—</td><td>1,529</td><td>—</td><td>1,529</td></tr><tr><td>Net income</td><td>—</td><td>—</td><td>473,692</td><td>—</td><td>—</td><td>473,692</td></tr><tr><td>Balances at December 31, 2013</td><td>$2,308</td><td>$3,159,038</td><td>$6,054,952</td><td>$ 5,671</td><td>$ (413,704)</td><td>$8,808,265</td></tr></table>

(1) Dividends declared by Pullmantur Air, S.A. to its non-controlling shareholder. See Note 6. Other Assets for further information regarding Pullmantur Air, S.A.'s ownership structure.

The following table summarizes activity in accumulated other comprehensive income (loss) related to derivatives designated as cash flow hedges (in thousands):

<table><tr><td>Year Ended December 31,</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Accumulated net (loss) gain on cash flow derivative hedges at beginning of year</td><td>$ (84,505)</td><td>$ (33,258)</td><td>$ 42,848</td></tr><tr><td>Net gain on cash flow derivative hedges</td><td>197,428</td><td>58,138</td><td>70,480</td></tr><tr><td>Net gain reclassified into earnings</td><td>(69,599)</td><td>(109,385)</td><td>(146,586)</td></tr><tr><td>Accumulated net gain (loss) on cash flow derivative hedges at end of year</td><td>$ 43,324</td><td>$ (84,505)</td><td>$ (33,258)</td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1. GENERAL

## Description of Business

We are a global cruise company. We own Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, CDF Croisières de France and a 50% joint venture interest in TUI Cruises. Together, these six brands operate a combined 41 ships as of December 31, 2013. Our ships operate on a selection of worldwide itineraries that call on approximately 490 destinations on all seven continents.

## Basis for Preparation of Consolidated Financial Statements

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Estimates are required for the preparation of financial statements in accordance with these principles. Actual results could differ from these estimates. See Note 2. Summary of Significant Accounting Policies for a discussion of our significant accounting policies.

All significant intercompany accounts and transactions are eliminated in consolidation. We consolidate entities over which we have control, usually evidenced by a direct ownership interest of greater than 50%, and variable interest entities where we are determined to be the primary beneficiary. See Note 6. Other Assets for further information regarding our variable interest entities. For affiliates we do not control but over which we have significant influence on financial and operating policies, usually evidenced by a direct ownership interest from 20% to 50%, the investment is accounted for using the equity method. We consolidate the operating results of Pullmantur and CDF Croisières de France on a two-month lag to allow for more timely preparation of our consolidated financial statements. No material events or transactions affecting Pullmantur or CDF Croisières de France have occurred during the two-month lag period of November and December 2013 that would require disclosure or adjustment to our consolidated financial statements as of December 31, 2013. For the anticipated sale of the Pullmantur non-core businesses, see Note 16. Restructuring and Related Impairment Charges.

## NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

## Revenues and Expenses

Deposits received on sales of passenger cruises are initially recorded as customer deposit liabilities on our balance sheet. Customer deposits are subsequently recognized as passenger ticket revenues, together with revenues from onboard and other goods and services and all associated direct costs of a voyage, upon completion of voyages with durations of ten days or less, and on a pro-rata basis for voyages in excess of ten days. Revenues and expenses include port costs that vary with guest head counts. The amounts of such port costs included in Passenger ticket revenues on a gross basis were $494.2 million, $459.8 million and $442.9 million for the years 2013, 2012 and 2011, respectively.

## Cash and Cash Equivalents

Cash and cash equivalents include cash and marketable securities with original maturities of less than 90 days.

## Inventories

Inventories consist of provisions, supplies and fuel carried at the lower of cost (weighted-average) or market.

## Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. We capitalize interest as part of the cost of acquiring certain assets. 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 in cruise operating expenses. Liquidated damages received from shipyards as a result of the late delivery of a new ship are recorded as reductions to the cost basis of the ship.

Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the asset. The useful lives of our ships are generally 30 years, net of a 15% projected residual value. The 30-year useful life of our newly constructed ships and 15% associated residual value are both based on 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. Depreciation for assets under capital leases is computed using the shorter of the lease term or related asset life. (See Note 5. Property and Equipment.)



## NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Depreciation of property and equipment is computed utilizing the following useful lives:

<table><tr><td></td><td>Years</td></tr><tr><td>Ships</td><td>generally 30</td></tr><tr><td>Ship improvements</td><td>3-20</td></tr><tr><td>Buildings and improvements</td><td>10-40</td></tr><tr><td>Computer hardware and software</td><td>3-5</td></tr><tr><td>Transportation equipment and other</td><td>3-30</td></tr><tr><td>Leasehold improvements</td><td>Shorter of remaining lease term or useful life 3-30</td></tr></table>

During the first quarter of 2013, we performed a review of the estimated useful lives and associated residual values of ships in our fleet approaching the last third of their estimated useful lives. As a result, effective January 1, 2013, we revised the estimated useful lives of five ships from 30 years with a 15% associated residual value, to 35 years with a 10% associated residual value. The change in the estimated useful lives and associated residual value was accounted for prospectively as a change in accounting estimate. The 35-year useful life with a 10% associated residual value is based on revised estimates of the weighted-average useful life of all major ship components for these ships. The change in estimate is consistent with our recent investments in and future plans to continue to invest in the revitalization of these ships and the use of certain ship components longer than originally estimated. The change allows us to better match depreciation expense with the periods these assets are expected to be in use. For the full year 2013, this change increased operating income and net income by approximately $11.0 million and increased earnings per share by $0.05 per share on a basic and diluted basis.

We review 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. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities 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 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 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 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 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.

## Goodwill

Goodwill represents the excess of cost over the fair value of net tangible and identifiable intangible assets acquired. We review goodwill 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 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. 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. If the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required. If the



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

## Intangible Assets

In connection with our acquisitions, we have acquired certain intangible assets to which value has been assigned based on our estimates. Intangible assets that are deemed to have an indefinite life are not amortized, but are subject to an annual impairment test, or when events or circumstances dictate, more frequently. The indefinite-life intangible asset impairment test consists of a comparison of the fair value of the indefinite-life intangible asset with its carrying amount. 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.

## 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.

## Advertising Costs

Advertising costs are expensed as incurred except those costs which result in tangible assets, such as brochures, which are treated as prepaid expenses and charged to expense as consumed. Advertising costs consist of media advertising as well as brochure, production and direct mail costs.

Media advertising was $205.8 million, $200.9 million and $193.7 million, and brochure, production and direct mail costs were $137.1 million, $130.4 million and $124.3 million for the years 2013, 2012 and 2011, respectively.

## 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 have 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 speculative purposes.

At inception of the hedge relationship, a derivative instrument that hedges the exposure to changes in the fair value of a firm commitment or a recognized asset or liability is designated as a fair value hedge. A derivative instrument that hedges a forecasted transaction or the variability of cash flows related to a recognized asset or liability is designated as a cash flow hedge.

Changes in the fair value of derivatives that are designated as fair value hedges are offset against changes in the fair value of the underlying hedged assets, liabilities or firm commitments. Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of Accumulated other comprehensive income (loss) until the underlying hedged transactions are recognized in earnings. The foreign currency transaction gain or loss of our non-derivative financial instruments designated as hedges of our net investment in foreign operations and investments are recognized as a component of Accumulated other comprehensive income (loss) along with the associated foreign currency translation adjustment of the foreign operation.

On an ongoing basis, we assess whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the fair value or cash flow of hedged items. We use the long-haul method to assess hedge effectiveness using regression analysis for each hedge relationship under our interest rate, foreign currency and fuel hedging programs. We apply the same methodology on a consistent basis for assessing hedge effectiveness to all hedges within each hedging program (i.e. interest rate, foreign currency and fuel). We perform regression analyses over an observation period of up to three years, utilizing market



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

data relevant to the hedge horizon of each hedge relationship. High effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the changes in the fair values of the derivative instrument and the hedged item. The determination of ineffectiveness is based on the amount of dollar offset between the change in fair value of the derivative instrument and the change in fair value of the hedged item at the end of the reporting period. If it is determined that a derivative is not highly effective as a hedge or hedge accounting is discontinued, any change in fair value of the derivative since the last date at which it was determined to be effective is recognized in earnings. In addition, the ineffective portion of our highly effective hedges is immediately recognized in earnings and reported in Other income (expense) in our consolidated statements of comprehensive income (loss).

Cash flows from derivative instruments that are designated as fair value or cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. Cash flows from derivative instruments not designated as hedging instruments are classified as investing activities.

We consider the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. We classify derivative instrument cash flows from hedges of benchmark interest rate or hedges of fuel expense as operating activities due to the nature of the hedged item. Likewise, we classify derivative instrument cash flows from hedges of foreign currency risk on our newbuild ship payments as investing activities. Cash flows from derivative instruments not designated under hedge accounting, such as our fuel call options, are classified as investing activities.

## Foreign Currency Translations and Transactions

We translate assets and liabilities of our foreign subsidiaries whose functional currency is the local currency, at exchange rates in effect at the balance sheet date. We translate revenues and expenses at weighted-average exchange rates for the period. Equity is translated at historical rates and the resulting foreign currency translation adjustments are included as a component of Accumulated other comprehensive income (loss), which is reflected as a separate component of Shareholders' equity. Exchange gains or losses arising from the remeasurement of monetary assets and liabilities denominated in a currency other than the functional currency of the entity involved are immediately included in our earnings, except for certain liabilities that have been designated to act as a hedge of a net investment in a foreign operation or investment. Exchange gains (losses) were $13.4 million, (11.8) million and (1.6) million for the years 2013, 2012 and 2011, respectively, and were recorded within Other (expense) income. The majority of our transactions are settled in United States dollars. Gains or losses resulting from transactions denominated in other currencies are recognized in income at each balance sheet date.

## Concentrations of Credit Risk

We monitor our credit risk associated with financial and other institutions with which we conduct significant business and, to minimize these risks, we select counterparties with credit risks acceptable to us and we seek to limit our exposure to an individual counterparty. Credit risk, including but not limited to counterparty nonperformance under derivative instruments, our credit facilities and new ship progress payment guarantees, is not considered significant, as we primarily conduct business with large, well-established financial institutions, insurance companies and export credit agencies with which we have long-term relationships and which have credit risks acceptable to us or where the credit risk is spread out among a large number of counterparties. In addition, our exposure under foreign currency forward contracts, foreign currency collar options, fuel call options, interest rate and fuel swap agreements was approximately $92.5 million and $60.8 million as of December 31, 2013 and 2012, respectively, and was limited to the cost of replacing the contracts in the event of nonperformance by the counterparties to the contracts, all of which are currently our lending banks. We do not anticipate nonperformance by any of our significant counterparties. In addition, we have established guidelines regarding credit ratings and instrument maturities that we follow to manage our counterparty exposure and credit risk. We do not normally require collateral or other security to support credit relationships; however, in certain circumstances this option is available to us.

## Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options and conversion of potentially dilutive securities. (See Note 10. Earnings Per Share.)

## Stock-Based Employee Compensation

We measure and recognize compensation expense at the estimated fair value of employee stock awards. Compensation expense for awards and the related tax effects are recognized as they vest. We use the estimated amount of expected forfeitures to calculate compensation costs for all outstanding awards.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

## Segment Reporting

We operate five wholly-owned cruise brands, Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisières de France. In addition, we have a 50% investment in a joint venture with TUI AG which operates the brand TUI Cruises. We believe our global brands possess the versatility to enter multiple cruise market segments within the cruise vacation industry. Although each of our brands has its own marketing style as well as ships and crews of various sizes, the nature of the products sold and services delivered by our brands share a common base (i.e. the sale and provision of cruise vacations). Our brands also have similar itineraries as well as similar cost and revenue components. In addition, our brands source passengers from similar markets around the world and operate in similar economic environments with a significant degree of commercial overlap. As a result, our brands (including TUI Cruises) have been aggregated as a single reportable segment based on the similarity of their economic characteristics, types of consumers, regulatory environment, maintenance requirements, supporting systems and processes as well as products and services provided. Our Chairman and Chief Executive Officer has been identified as the chief operating decision-maker and all significant operating decisions including the allocation of resources are based upon the analyses of the Company as one segment.

Information by geographic area is shown in the table below. Passenger ticket revenues are attributed to geographic areas based on where the reservation originates.

<table><tr><td></td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Passenger ticket revenues:</td><td></td><td></td><td></td></tr><tr><td>United States</td><td>52%</td><td>51%</td><td>51%</td></tr><tr><td>All other countries</td><td>48%</td><td>49%</td><td>49%</td></tr></table>

## Recent Accounting Pronouncements

In March 2013, amended guidance was issued regarding the release of cumulative translation adjustments into net income. The new guidance provides clarification of when to release the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. This guidance will be effective for our interim and annual reporting periods beginning after December 15, 2013. The adoption of this newly issued guidance is not expected to have a material impact on our consolidated financial statements, but will have an impact on the accounting for future sales of investments or changes in control of foreign entities.
In January 2014, amended guidance was issued regarding the accounting of service concession arrangements. The new guidance defines a service concession as an arrangement between a public-sector entity grantor and an operating entity under which the operating entity operates and maintains the grantor's infrastructure for a specified period of time and in return receives payments from the grantor and or third party user for use of the infrastructure. The guidance prohibits the operating entity from accounting for a service concession arrangement as a lease and from recording the infrastructure used in the arrangement within property, plant and equipment. This guidance must be applied using a modified retrospective approach and will be effective for our interim and annual reporting periods beginning after December 15, 2014. Early adoption is permitted. The adoption of this newly issued guidance is not expected to have a material impact on our consolidated financial statements.

## Reclassifications

For the year ended December 31, 2012, $7.7 million has been reclassified in the consolidated statements of cash flows from Other, net to Loss (gain) on derivative instruments not designated as hedges within Net cash provided by operating activities in order to conform to the current year presentation.

## NOTE 3. GOODWILL

The carrying amount of goodwill attributable to our Royal Caribbean International and Pullmantur reporting units was as follows (in thousands):

<table><tr><td></td><td>Royal Caribbean International</td><td>Pullmantur</td><td>Total</td></tr><tr><td>Balance at December 31, 2011</td><td>$287,408</td><td>$ 459,129</td><td>$ 746,537</td></tr><tr><td>Impairment charge</td><td>—</td><td>(319,214)</td><td>(319,214)</td></tr><tr><td>Foreign currency translation adjustment</td><td>28</td><td>5,624</td><td>5,652</td></tr><tr><td>Balance at December 31, 2012</td><td>$287,436</td><td>$ 145,539</td><td>$ 432,975</td></tr><tr><td>Foreign currency translation adjustment</td><td>(312)</td><td>6,568</td><td>6,256</td></tr><tr><td>Balance at December 31, 2013</td><td>$287,124</td><td>$ 152,107</td><td>$ 439,231</td></tr></table>

In 2012, we determined the implied fair value of goodwill for the Pullmantur reporting unit was $145.5 million and recognized an impairment charge of $319.2 million based on a probability-weighted discounted cash flow model further discussed below. This impairment charge was recognized in earnings during the fourth quarter of 2012 and is reported within Impairment of Pullmantur related assets within our consolidated statements of comprehensive income (loss).



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During the fourth quarter of 2013, we performed a qualitative assessment of whether it was more-likely-than-not that our Royal Caribbean International reporting unit’s fair value was less than its carrying amount before applying the two-step goodwill impairment test. The qualitative analysis included assessing the impact of certain factors such as general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates. 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, its financial performance has been solid in the face of mixed economic environments and forecasts of operating results generated by the reporting unit appear sufficient to support its carrying value.

We also performed our annual impairment review of goodwill for Pullmantur’s reporting unit during the fourth quarter of 2013. Various strategic decisions regarding Pullmantur, such as the opening of a regional head office in Panama and the agreement for the sale of its non-core businesses, indicated changes in its forecasted cash flows. Therefore, we did not perform a qualitative assessment but instead proceeded directly to the two-step goodwill impairment test. We estimated the fair value of the Pullmantur reporting unit using a probability-weighted discounted cash flow model. The principal assumptions used in the discounted cash flow model are projected operating results, weighted-average cost of capital, and terminal value. Significantly impacting these assumptions are the transfer of vessels from our other cruise brands to Pullmantur. The discounted cash flow model used our 2014 projected operating results as a base. To that base we added future years’ cash flows assuming multiple revenue and expense scenarios that reflect the impact on Pullmantur’s reporting unit of different global economic environments beyond 2014. We assigned a probability to each revenue and expense scenario.

We discounted the projected cash flows using rates specific to Pullmantur’s reporting unit based on its weighted-average cost of capital. Based on the probability-weighted discounted cash flows, we determined the fair value of the Pullmantur reporting unit exceeded its carrying value by approximately 8% resulting in no impairment to Pullmantur’s goodwill. Pullmantur is a brand targeted primarily at the Spanish, Portuguese and Latin American markets, with an increasing focus on Latin America. The persistent economic instability in these markets has created significant uncertainties in forecasting operating results and future cash flows used in our impairment analyses. We continue to monitor economic events in these markets for their potential impact on Pullmantur’s business and valuation. Further, 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.

If there are relatively modest changes to the projected future cash flows used in the impairment analyses, especially in Net Yields or if certain transfers of vessels from our other cruise brands to the Pullmantur fleet do not take place, it is reasonably possible that an impairment charge of Pullmantur’s reporting unit’s goodwill and trademark and trade names may be required. Of these factors, the planned transfers of vessels to the Pullmantur fleet is most significant to the projected future cash flows. If the transfers do not occur, we will likely fail step one of the impairment test.

## NOTE 4. INTANGIBLE ASSETS

Intangible assets are reported in Other assets in our consolidated balance sheets and consist of the following (in thousands):

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Indefinite-life intangible asset—Pullmantur trademarks and trade names</td><td>$204,866</td><td>$218,883</td></tr><tr><td>Impairment charge</td><td>—</td><td>(17,356)</td></tr><tr><td>Foreign currency translation adjustment</td><td>9,246</td><td>3,339</td></tr><tr><td>Total</td><td>$214,112</td><td>$204,866</td></tr></table>

During the fourth quarter of 2013 and 2012, we performed the annual impairment review of our trademarks and trade names using a discounted cash flow model and the relief-from-royalty method. The royalty rate used is based on comparable royalty agreements in the tourism and hospitality industry. These trademarks and trade names relate to Pullmantur and we have used a discount rate comparable to the rate used in valuing the Pullmantur reporting unit in our goodwill impairment test. Based on the results of our testing, we did not record an impairment of Pullmantur’s tradenames and trademarks for the year ended December 31, 2013 but for the year ended December 31, 2012, we recorded an impairment of $17.4 million.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As described in Note 3. Goodwill, the persistent economic instability in Pullmantur's markets has created significant uncertainties in forecasting operating results and future cash flows used in our impairment analysis. We continue to monitor economic events in these markets for their potential impact on Pullmantur's business and valuation. Further, 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. If there are modest changes to the projected future cash flows used in the impairment analysis, especially in Net Yields or if certain transfers of vessels from our other cruise brands to the Pullmantur fleet do not take place, an impairment charge with respect to the Pullmantur reporting unit's trademarks and trade names may be required.

Finite-life intangible assets and related accumulated amortization are immaterial to our 2013, 2012, and 2011 consolidated financial statements.

## NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Ships</td><td>$20,858,553</td><td>$20,855,606</td></tr><tr><td>Ship improvements</td><td>1,683,644</td><td>1,341,137</td></tr><tr><td>Ships under construction</td><td>563,676</td><td>169,274</td></tr><tr><td>Land, buildings and improvements, including leasehold improvements and port facilities</td><td>394,120</td><td>377,821</td></tr><tr><td>Computer hardware and software, transportation equipment and other</td><td>771,304</td><td>698,865</td></tr><tr><td>Total property and equipment</td><td>24,271,297</td><td>23,442,703</td></tr><tr><td>Less—accumulated depreciation and amortization</td><td>(6,753,545)</td><td>(5,991,669)</td></tr><tr><td></td><td>$17,517,752</td><td>$17,451,034</td></tr></table>

Ships under construction include progress payments for the construction of new ships as well as planning, design, interest, commitment fees and other associated costs. We capitalized interest costs of $17.9 million, $13.3 million and $14.0 million for the years 2013, 2012 and 2011, respectively.
In 2013, our agreement with STX France S.A. to build the third Oasis-class ship for Royal Caribbean International became effective. Refer to Note 15. Commitments and Contingencies for further information. Pullmantur's Atlantic Star, which has been out of operation since 2009, was transferred in the first quarter of 2013 to an affiliate of STX France S.A. as part of the consideration for the third Oasis-class ship. The Atlantic Star was transferred at carrying value, which approximated its fair value on the date of its transfer. The transfer did not result in a gain or a loss.

We review our long-lived assets for impairment whenever events or changes in circumstances indicate potential impairment. Due to an anticipated change in the nature of the cash flows to be generated by the Pullmantur aircraft, we reviewed the aircraft for impairment. We identified that the undiscounted future cash flows of the aircraft were less than their carrying value and recorded a restructuring related impairment charge of $13.5 million which is reported in Restructuring and related impairment charges in our consolidated statements of comprehensive income (loss) as of December 31, 2013.

Additionally, Pullmantur’s non-core businesses met the accounting criteria to be classified as held for sale during the fourth quarter of 2013 which led to restructuring related impairment charges of $18.2 million to adjust the carrying value of property and equipment held for sale to its fair value, less cost to sell. The impairment charge is reported in Restructuring and related impairment charges in our consolidated statements of comprehensive income (loss). The remaining long-lived assets held for sale are not material. See Note 14. Fair Value Measurements and Derivative Instruments and Note 16. Restructuring and Related Impairment Charges for further discussion.

During 2012, the fair value of Pullmantur’s aircraft were determined to be less than their carrying value and an impairment charge of $48.9 million was recognized in earnings during the fourth quarter of 2012 and was reported within Impairment of Pullmantur related assets within our consolidated statements of comprehensive income (loss).

During 2012, Pullmantur delivered Ocean Dream to an unrelated third party as part of a six year bareboat charter agreement. The charter agreement provides a renewal option exercisable by the unrelated third party for an additional four years. The charter agreement constitutes an operating lease and charter revenue is being recognized on a straight-line basis over the six year charter term. The charter revenue recognized during 2013 and 2012 was not material to our results of operations.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 6. OTHER ASSETS

## Variable Interest Entities

A Variable Interest Entity (“VIE”), is an entity in which the equity investors have not provided enough equity to finance the entity’s activities or the equity investors (1) cannot directly or indirectly make decisions about the entity’s activities through their voting rights or similar rights; (2) do not have the obligation to absorb the expected losses of the entity; (3) do not have the right to receive the expected residual returns of the entity; or (4) have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.

We have determined that Grand Bahama Shipyard Ltd. (“Grand Bahama”), a ship repair and maintenance facility in which we have a 40% noncontrolling interest, is a VIE. The facility serves cruise and cargo ships, oil and gas tankers, and offshore units. We utilize this facility, among other ship repair facilities, for our regularly scheduled drydocks and certain emergency repairs as may be required. We have determined we are not the primary beneficiary of this facility, as we do not have the power to direct the activities that most significantly impact the facility’s economic performance. Accordingly, we do not consolidate this entity and we account for this investment under the equity method of accounting. As of December 31, 2013, the net book value of our investment in Grand Bahama, was approximately $56.1 million, consisting of $6.4 million in equity and $49.7 million in loans. As of December 31, 2012, the net book value of our investment in Grand Bahama was approximately $59.3 million, consisting of $3.3 million in equity and $56.0 million in loans. These amounts represent our maximum exposure to loss as we are not contractually required to provide any financial or other support to the facility. The majority of our loans to Grand Bahama are in non-accrual status and the majority of this amount was included within Other assets in our consolidated balance sheets. We received approximately $6.2 million and $5.5 million in principal and interest payments related to loans that are in accrual status from Grand Bahama in 2013 and 2012, respectively, and recorded income associated with our investment in Grand Bahama. We monitor credit risk associated with these loans through our participation on Grand Bahama’s board of directors along with our review of Grand Bahama’s financial statements and projected cash flows. Based on this review, we believe the risk of loss associated with these loans was not probable as of December 31, 2013.

In conjunction with our acquisition of Pullmantur in 2006, we obtained a 49% noncontrolling interest in Pullmantur Air, S.A. (“Pullmantur Air”), a small air business that operates four aircraft in support of Pullmantur’s operations. As of December 31, 2013, we have determined Pullmantur Air is a VIE for which we are the primary beneficiary as we have the power to direct the activities that most significantly impact its economic performance and we are obligated to absorb its losses. As a result, we have consolidated the assets and liabilities of Pullmantur Air. We do not separately disclose the assets and liabilities of Pullmantur Air as they are immaterial to our December 31, 2013 and December 31, 2012 consolidated financial statements. In December 2013, Pullmantur reached an agreement to sell its controlling interest in its land-based tour operations, travel agency as well as the majority of its interest in Pullmantur Air, the closing of which is subject to customary closing conditions. See Note 16. Restructuring and Related Impairment Charges for further discussion on the anticipated transaction.

We have determined that TUI Cruises GmbH, our 50%-owned joint venture which operates the brand TUI Cruises, is a VIE. As of December 31, 2013 and December 31, 2012, our investment in TUI Cruises, including equity and loans, was approximately $354.3 million and $287.0 million, respectively, and the majority of this amount was included within Other assets in our consolidated balance sheets. In addition, we and TUI AG, our joint venture partner, have each guaranteed the repayment of 50% of a €180.0 million bank loan provided to TUI Cruises and due 2016 (refer to further details below). Our investment amount and the potential obligations under this guarantee are substantially our maximum exposure to loss. We have determined that we are not the primary beneficiary of TUI Cruises. We believe that the power to direct the activities that most significantly impact TUI Cruises' economic performance are shared between ourselves and TUI AG. All the significant operating and financial decisions of TUI Cruises require the consent of both parties which we believe creates shared power over TUI Cruises. Accordingly, we do not consolidate this entity and account for this investment under the equity method of accounting.

In connection with our sale of Celebrity Mercury to TUI Cruises in 2011, we provided a debt facility to TUI Cruises in the amount of up to €90.0 million. The outstanding principal amount of the facility as of



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013 was €57.1 million, or approximately $78.7 million based on the exchange rate at December 31, 2013. The facility bears interest at the rate of 9.54% per annum, is payable over seven years, is 50% guaranteed by TUI AG and is secured by second mortgages on both of TUI Cruises' ships, Mein Schiff 1 and Mein Schiff 2. As of December 31, 2013, TUI Cruises' bank loan discussed above had a remaining balance of €135.0 million, or approximately $186.0 million based on the exchange rate at December 31, 2013. The bank loan amortizes quarterly and is secured by first mortgages on both Mein Schiff 1 and Mein Schiff 2. Based on current facts and circumstances, we do not believe potential obligations under our guarantee of TUI Cruises' bank loan are probable.

During 2011 and 2012, TUI Cruises entered into construction agreements with STX Finland to build its first and second newbuild ships, scheduled for delivery in the second quarter of 2014 and the second quarter of 2015. TUI Cruises has entered into credit agreements for the financing of up to 80.0% of the contract price of each ship. The remaining portion of the contract price of the ships will be funded through either TUI Cruises' cash flows from operations and/or loans and/or equity contributions from us and TUI AG. The construction agreements for the ships include certain restrictions on each of our and TUI AG's ability to reduce our current ownership interest in TUI Cruises below 37.5% through the construction periods. In addition, the credit agreements extend this restriction through 2019.

## NOTE 7. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>$1.1 billion unsecured revolving credit facility, LIBOR plus 1.75%, currently 1.91% and a facility fee of 0.3675%, due 2016</td><td>$ 435,000</td><td>$ 48,000</td></tr><tr><td>$850 million unsecured revolving credit facility, LIBOR plus 1.75%, currently 1.92% and a facility fee of 0.3675%, due 2018</td><td>295,000</td><td>12,000</td></tr><tr><td>Unsecured senior notes and senior debentures, 5.25% to 11.88%, due 2015, 2016, 2018, 2022 and 2027</td><td>1,703,040</td><td>2,698,531</td></tr><tr><td>€745 million unsecured senior notes, 5.63%, due 2014</td><td>1,028,126</td><td>1,004,940</td></tr><tr><td>$570 million unsecured term loan, 4.02%, due through 2013</td><td>—</td><td>40,714</td></tr><tr><td>$589 million unsecured term loan, 4.47%, due through 2014</td><td>42,071</td><td>126,214</td></tr><tr><td>$530 million unsecured term loan, LIBOR plus 0.51%, currently 0.87%, due through 2015</td><td>113,571</td><td>189,286</td></tr><tr><td>$519 million unsecured term loan, LIBOR plus 0.45%, currently 0.81%, due through 2020</td><td>302,835</td><td>346,097</td></tr><tr><td>$420 million unsecured term loan, 5.41%, due through 2021(1)</td><td>274,974</td><td>318,230</td></tr><tr><td>$420 million unsecured term loan, LIBOR plus 2.10%, currently 2.46%, due through 2021(1)</td><td>280,000</td><td>315,000</td></tr><tr><td>€159.4 million unsecured term loan, EURIBOR plus 1.58%, currently 1.92%, due through 2021(1)</td><td>146,452</td><td>157,643</td></tr><tr><td>$524.5 million unsecured term loan, LIBOR plus 0.50%, currently 0.90%, due through 2021</td><td>349,667</td><td>393,375</td></tr><tr><td>$566.1 million unsecured term loan, LIBOR plus 0.37%, currently 0.74%, due through 2022</td><td>400,966</td><td>448,138</td></tr><tr><td>$1.1 billion unsecured term loan, LIBOR plus 2.10%, currently 2.46%, due through 2022(2)</td><td>690,978</td><td>767,754</td></tr><tr><td>$632.0 million unsecured term loan, LIBOR plus 0.40%, currently 0.80%, due through 2023</td><td>526,632</td><td>579,295</td></tr><tr><td>$673.5 million unsecured term loan, LIBOR plus 0.40%, currently 0.77%, due through 2024</td><td>617,351</td><td>673,474</td></tr><tr><td>$290.0 million unsecured term loan, LIBOR plus 2.5%, currently 2.67%, due 2016</td><td>290,000</td><td>290,000</td></tr><tr><td>€365 million unsecured term loan, EURIBOR plus 3.0%, currently 3.23%, due 2017</td><td>502,934</td><td>—</td></tr><tr><td>$7.3 million unsecured term loan, LIBOR plus 2.5%, currently 2.93%, due through 2023</td><td>5,391</td><td>5,867</td></tr><tr><td>$30.3 million unsecured term loan, LIBOR plus 3.75%, currently 3.99%, due through 2021</td><td>15,073</td><td>22,458</td></tr><tr><td>Capital lease obligations</td><td>54,743</td><td>52,931</td></tr><tr><td></td><td>8,074,804</td><td>8,489,947</td></tr><tr><td>Less-current portion</td><td>(1,563,378)</td><td>(1,519,483)</td></tr><tr><td>Long-term portion</td><td>$ 6,511,426</td><td>$ 6,970,464</td></tr></table>

(1) Corresponds to Oasis of the Seas unsecured term loan. With respect to 60% of the financing, the lenders have the ability to exit the facility in October 2015.

(2) Corresponds to Allure of the Seas unsecured term loan. With respect to 100% of the financing, the lenders have the ability to exit the facility in October 2017.

During 2013, we borrowed €365.0 million, or approximately $502.9 million based on the exchange rate at December 31, 2013, under a previously committed unsecured term loan facility. The proceeds of this loan were used to repay amounts outstanding under our unsecured revolving credit facilities.
During 2013, we amended and restated our $525.0 million unsecured revolving credit facility due November 2014. The amendment increased capacity under this facility to $850.0 million, reduced the applicable margin and fees and extended the termination date to August 2018. Interest on the amended facility accrues at a floating rate based on LIBOR plus the applicable margin. The applicable margin and facility fee vary



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

with our debt rating. Under the amended facility, we have the ability to increase the capacity of the facility by an additional $300.0 million from time to time subject to the receipt of additional or increased lender commitments. In addition, during 2013 we increased the capacity of our unsecured revolving credit facility due July 2016 by $20.0 million, bringing our total capacity under this facility to $1.1 billion. Accordingly, as of December 31, 2013, we have an aggregate revolving borrowing capacity of $2.0 billion.

In August 2013, we entered into a delayed draw credit agreement which provides an unsecured term loan facility in an amount up to $380.0 million. During January 2014, we fully drew on this facility. The loan is due and payable at maturity in August 2018. Interest on the loan accrues at a floating rate based on LIBOR plus the applicable margin. The applicable margin varies with our debt rating and would have been 2.12% as of December 31, 2013. In addition, as of December 31, 2013, we are subject to a commitment fee of 0.37% per annum of the undrawn amount. The proceeds from this loan facility were used towards our bond maturity in January 2014.

During 2013, we repurchased $21.0 million of our 11.875% unsecured senior notes due 2015. Total consideration paid in connection with the repurchase, including premium and related fees and expenses, was $24.9 million. During 2012, we repurchased €255.0 million or approximately $328.0 million in aggregate principal amount of our €1.0 billion 5.625% unsecured senior notes due 2014 through a debt tender offer conducted outside of the United States. Total consideration paid in connection with the tender offer, including premium and related fees and expenses was $344.6 million. The repurchase of the unsecured senior notes resulted in losses on the extinguishment of debt of approximately $4.2 million and $7.5 million in 2013 and 2012, respectively, which were recognized in earnings immediately.

In December 2013, we entered into a delayed draw credit agreement which provides an unsecured term loan facility in an amount up to $65.0 million. The loan is due and payable at maturity in December 2019. Interest on the loan accrues at a floating rate based on LIBOR plus the applicable margin. The applicable margin varies with our debt rating and would have been 2.12% as of December 31, 2013. In addition, as of December 31, 2013, we are subject to a commitment fee of 0.37% per annum of the undrawn amount. As of the date of this filing, we have not drawn on this facility.

Certain of our unsecured ship financing term loans are guaranteed by the export credit agency in the respective country in which the ship is constructed. In consideration for these guarantees, depending on the financing arrangement, we pay to the applicable export credit agency fees that range from either (1) 0.88% to 1.48% per annum based on the outstanding loan balance semi-annually over the term of the loan (subject to adjustment under certain of our facilities based upon our credit ratings) or (2) an upfront fee of approximately 2.3% to 2.37% of the maximum loan amount. We amortize the fees that are paid upfront over the life of the loan and those that are paid semi-annually over each respective payment period. We classify these fees within Debt issuance costs in our consolidated statements of cash flows and within Other assets in our consolidated balance sheets.

Under certain of our agreements, the contractual interest rate, facility fee and/or export credit agency fee vary with our debt rating.

The unsecured senior notes and senior debentures are not redeemable prior to maturity, except that certain series may be redeemed upon the payment of a make-whole premium.

Following is a schedule of annual maturities on long-term debt including capital leases as of December 31, 2013 for each of the next five years (in thousands):

<table><tr><td>Year</td><td></td></tr><tr><td>2014</td><td>$1,563,378</td></tr><tr><td>2015</td><td>1,051,912</td></tr><tr><td>2016</td><td>1,474,827</td></tr><tr><td>2017</td><td>1,247,158</td></tr><tr><td>2018</td><td>728,276</td></tr><tr><td>Thereafter</td><td>2,009,253</td></tr><tr><td></td><td>$8,074,804</td></tr></table>

## NOTE 8. SHAREHOLDERS' EQUITY

In December 2013, we declared a cash dividend on our common stock of $0.25 per share which was paid in the first quarter of 2014. We declared a cash dividend on our common stock of $0.25 per share during the third quarter of 2013 which was paid in the fourth quarter of 2013. We declared and paid a cash dividend on our common stock of $0.12 per share during the first and second quarters of 2013.

During the fourth quarter of 2012, we declared a cash dividend on our common stock of $0.12 per share which was paid in the first quarter of 2013. We declared a cash dividend on our common stock of $0.12 per share during the third quarter of 2012 which was paid in the fourth quarter of 2012. We declared and paid a cash dividend on our common stock of $0.10 per share during the first and second quarters of 2012. During the first quarter of 2012, we also paid a cash dividend on our common stock of $0.10 per share which was declared during the fourth quarter of 2011.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 9. STOCK-BASED EMPLOYEE COMPENSATION

We currently have awards outstanding under three stock-based compensation plans, which provide for awards to our officers, directors and key employees. The plans consist of a 1995 Incentive Stock Option Plan, a 2000 Stock Award Plan, and a 2008 Equity Plan. Our ability to issue new awards under the 1995 Incentive Stock Option Plan and the 2000 Stock Award Plan terminated in accordance with the terms of the plans in February 2005 and September 2009, respectively. The 2008 Equity Plan, as amended, provides for the issuance of up to 11,000,000 shares of our common stock pursuant to grants of (i) incentive and non-qualified stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units and (v) performance shares. During any calendar year, no one individual shall be granted awards of more than 500,000 shares. With limited exceptions, options and restricted stock units outstanding as of December 31, 2013 vest in equal installments over four to five years from the date of grant. With certain limited exceptions, options and restricted stock units are forfeited if the recipient ceases to be a director or employee before the shares vest. Options are granted at a price not less than the fair value of the shares on the date of grant and expire not later than ten years after the date of grant.

Prior to 2012, our officers received a combination of stock options and restricted stock units. Beginning in 2012, our officers instead receive their long-term incentive awards through a combination of performance shares and restricted stock units. Each performance share award is expressed as a target number of performance shares based upon the fair market value of our common stock on the date the award is issued. The actual number of shares underlying each award (not to exceed 200% of the target number of performance shares) will be determined based upon the Company's achievement of a specified performance target range. For the grants awarded in 2013, the performance target is return on invested capital ("ROIC") for the year ended December 31, 2013, as adjusted by the Compensation Committee of our Board of Directors for events that are outside of management's control. In 2013, we issued a target number of 242,352 performance shares which will vest on the third anniversary of the award issue date. In February 2014, the Compensation Committee of our Board of Directors set the actual payout level at 82.0% of target for the performance shares issued in 2013.
We also provide an Employee Stock Purchase Plan (“ESPP”) to facilitate the purchase by employees of up to 800,000 shares of common stock in the aggregate. Offerings to employees are made on a quarterly basis. Subject to certain limitations, the purchase price for each share of common stock is equal to 90.0% of the average of the market prices of the common stock as reported on the New York Stock Exchange on the first business day of the purchase period and the last business day of each month of the purchase period. During 2013, 2012 and 2011, 27,036, 35,927 and 28,802 shares of our common stock were issued under the ESPP at a weighted-average price of $33.16, $25.58 and $29.46, respectively.

Under the chief executive officer’s employment agreement, we issued 10,086 shares of our common stock per quarter during 2013, 2012 and 2011 to the chief executive officer.

Total compensation expense recognized for employee stock-based compensation for the years ended December 31, 2013, 2012 and 2011 was as follows:

<table><tr><td rowspan="2">Classification of expense</td><td colspan="3">Employee Stock-Based Compensation</td></tr><tr><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>(Mr. thousands)</td><td></td><td></td><td></td></tr><tr><td>Marketing, selling and administrative expenses</td><td>$21,178</td><td>$24,153</td><td>$23,803</td></tr><tr><td>Total compensation expense</td><td>$21,178</td><td>$24,153</td><td>$23,803</td><td rowspan="2"></td></tr><tr><td></td><td></td><td></td><td></td></tr></table>

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The estimated fair value of stock options, less estimated forfeitures, is amortized over the vesting period using the graded-vesting method. We did not issue any stock options in 2013. The assumptions used in the Black-Scholes option-pricing model are as follows:

<table><tr><td></td><td>2012</td><td>2011</td></tr><tr><td>Dividend yield</td><td>1.5%</td><td>—</td></tr><tr><td>Expected stock price volatility</td><td>46.0%</td><td>46.0%</td></tr><tr><td>Risk-free interest rate</td><td>1.1%</td><td>2.6%</td></tr><tr><td>Expected option life</td><td>6 years</td><td>6 years</td></tr></table>

Expected volatility was based on a combination of historical and implied volatilities. The risk-free interest rate was based on United States Treasury zero coupon issues with a remaining term equal to the expected option life assumed at the date of grant. The expected term was calculated based on historical experience and represents the time period options actually remain outstanding. We estimate forfeitures based on historical pre-vesting forfeiture rates and revise those estimates as appropriate to reflect actual experience.



## NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Stock option activity and information about stock options outstanding are summarized in the following table:

<table><tr><td>Stock Option Activity</td><td>Number of Options</td><td>Weighted-Average Exercise Price</td><td>Weighted-Average Remaining Contractual Term</td><td>Aggregate Intrinsic Value \( ^{(1)} \)</td></tr><tr><td>Outstanding at January 1, 2013</td><td>4,448,773</td><td>$33.56</td><td>4.55</td><td>(in thousands) $25,522</td></tr><tr><td>Granted</td><td>—</td><td>$ —</td><td></td><td></td></tr><tr><td>Exercised</td><td>(1,206,860)</td><td>$25.42</td><td></td><td></td></tr><tr><td>Canceled</td><td>(547,041)</td><td>$37.37</td><td></td><td></td></tr><tr><td>Outstanding at December 31, 2013</td><td>2,694,872</td><td>$36.30</td><td>3.83</td><td>$30,080</td></tr><tr><td>Vested and expected to vest at December 31, 2013</td><td>2,678,160</td><td>$36.27</td><td>3.81</td><td>$29,978</td></tr><tr><td>Options Exercisable at December 31, 2013</td><td>2,344,123</td><td>$36.42</td><td>3.41</td><td>$25,914</td></tr></table>

(1) The intrinsic value represents the amount by which the fair value of stock exceeds the option exercise price as of December 31, 2013.

The weighted-average estimated fair value of stock options granted was $9.90 and $21.39 during the years ended December 31, 2012 and 2011, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2013, 2012 and 2011 was $17.5 million, $15.3 million and $17.3 million, respectively. As of December 31, 2013, there was approximately $0.7 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock options granted under our stock incentive plans which is expected to be recognized over a weighted-average period of 0.4 years.

Restricted stock units are converted into shares of common stock upon vesting or, if applicable, settle on a one-for-one basis. The cost of these awards is determined using the fair value of our common stock on the date of the grant, and compensation expense is recognized over the vesting period. Restricted stock activity is summarized in the following table:

<table><tr><td>Restricted Stock Activity</td><td>Number of Awards</td><td>Weighted-Average Grant Date Fair Value</td></tr><tr><td>Non-vested share units at January 1, 2013</td><td>1,196,440</td><td>$14.02</td></tr><tr><td>Granted</td><td>489,840</td><td>$36.07</td></tr><tr><td>Vested</td><td>(535,009)</td><td>$35.93</td></tr><tr><td>Canceled</td><td>(162,266)</td><td>$37.38</td></tr><tr><td>Non-vested share units expected to vest as of December 31, 2013</td><td>989,005</td><td>$9.26</td></tr></table>

The weighted-average estimated fair value of restricted stock units granted during the year ended December 31, 2012, and 2011 were $30.03 and $45.67, respectively. The total fair value of shares released on the vesting of restricted stock units during the years ended December 31, 2013, 2012 and 2011 was $19.2 million, $18.8 million and $25.1 million, respectively. As of December 31, 2013, we had $9.4 million of total unrecognized compensation expense, net of estimated forfeitures, related to restricted stock unit grants, which will be recognized over the weighted-average period of 1.19 years.

Performance stock awards are converted into shares of common stock upon vesting on a one-for-one basis. We estimate the fair value of each performance share when the grant is authorized and the related service period has commenced. We remeasure the fair value of our performance shares in each subsequent reporting period until the grant date has occurred, which is the date when the performance conditions are satisfied. We recognize compensation cost over the vesting period based on the probability of the service and performance conditions being achieved adjusted for each subsequent fair value measurement until the grant date. If the specified service and performance conditions are not met, compensation expense will not be recognized and any previously recognized compensation expense will be reversed. Performance stock activity is summarized in the following table:

<table><tr><td>Performance Stock Activity</td><td>Number of Awards</td><td>Weighted-Average Grant Date Fair Value</td></tr><tr><td>Non-vested share units at January 1, 2013</td><td>288,493</td><td>$30.78</td></tr><tr><td>Granted</td><td>242,352</td><td>$35.98</td></tr><tr><td>Vested</td><td>(3,021)</td><td>$41.79</td></tr><tr><td>Canceled</td><td>(67,895)</td><td>$38.13</td></tr><tr><td>Non-vested share units expected to vest as of December 31, 2013</td><td>459,929</td><td>$32.36</td></tr></table>

As of December 31, 2013, we had $8.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to performance share unit grants, which will be recognized over the weighted-average period of 1.6 years.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 10. EARNINGS PER SHARE

A reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share data):

<table><tr><td>Year Ended December 31,</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Net income for basic and diluted earnings per share</td><td>$473,692</td><td>$ 18,287</td><td>$607,421</td></tr><tr><td>Weighted-average common shares outstanding</td><td>219,638</td><td>217,930</td><td>216,983</td></tr><tr><td>Dilutive effect of stock options, performance share awards and restricted stock awards</td><td>1,303</td><td>1,527</td><td>2,246</td></tr><tr><td>Diluted weighted-average shares outstanding</td><td>220,941</td><td>219,457</td><td>219,229</td></tr><tr><td>Basic earnings per share:</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 2.16</td><td>$ 0.08</td><td>$ 2.80</td></tr><tr><td>Diluted earnings per share:</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 2.14</td><td>$ 0.08</td><td>$ 2.77</td></tr></table>

Diluted earnings per share did not reflect options to purchase an aggregate of 1.9 million, 3.1 million and 2.8 million shares for each of the years ended December 31, 2013, 2012 and 2011, respectively, because the effect of including them would have been antidilutive.

## NOTE 11. RETIREMENT PLAN

We maintain a defined contribution pension plan covering full-time shoreside employees who have completed the minimum period of continuous service. Annual contributions to the plan are discretionary and are based on fixed percentages of participants' salaries and years of service, not to exceed certain maximums. Pension expenses were $13.0 million, $15.2 million and $15.3 million for the years ended December 31, 2013, 2012 and 2011, respectively.

## NOTE 12. INCOME TAXES

We are subject to corporate income taxes in countries where we have operations or subsidiaries. We and the majority of our ship-operating and vessel-owning subsidiaries are currently exempt from United States corporate tax on United States source income from the international operation of ships pursuant to Section 883 of the Internal Revenue Code. Regulations under Section 883 have limited the activities that are considered the international operation of a ship or incidental thereto. Accordingly, our provision for United States federal and state income taxes includes taxes on certain activities not considered incidental to the international operation of our ships.
Additionally, some of our ship-operating subsidiaries are subject to income tax under the tonnage tax regimes of Malta or the United Kingdom. Under these regimes, income from qualifying activities is not subject to corporate income tax. Instead, these subsidiaries are subject to a tonnage tax computed by reference to the tonnage of the ship or ships registered under the relevant provisions of the tax regimes. Income from activities not considered qualifying activities, which we do not consider significant, remains subject to Maltese or United Kingdom corporate income tax.

Income tax expense for items not qualifying under Section 883, tonnage taxes and income taxes for the remainder of our subsidiaries was approximately $24.9 million, $55.5 million and $20.7 million and was recorded within Other (expense) income for the years ended December 31, 2013, 2012 and 2011, respectively. In addition, all interest expense and penalties related to income tax liabilities are classified as income tax expense within Other (expense) income.

We do not expect to incur income taxes on future distributions of undistributed earnings of foreign subsidiaries. Consequently, no deferred income taxes have been provided for the distribution of these earnings.

Deferred tax assets, related valuation allowances and deferred tax liabilities related to our operations are not material as of December 31, 2013 and 2012.

We regularly review deferred tax assets for recoverability based on our history of earnings, expectations of future earnings, and tax planning strategies. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income to support the amount of deferred taxes. A valuation allowance is recorded in those circumstances in which we conclude it is not more-likely-than-not we will recover the deferred tax assets prior to their expiration. During 2012, we determined that a 100% valuation allowance of our deferred tax assets was required resulting in a deferred income tax expense of $33.7 million. In addition, Pullmantur has a deferred tax liability that was recorded at the time of acquisition. This liability represents the tax effect of the basis difference between the tax and book values of the trademarks and trade names that were acquired at the time of the acquisition. Due to the impairment charge related to these intangible assets, we reduced the deferred tax liability and recorded a deferred tax benefit of $5.2 million. The net $28.5 million impact of these adjustments was recognized in earnings during the fourth quarter of 2012 and was reported within Other (expense) income in our statements of comprehensive income (loss).



## NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 13. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in accumulated other comprehensive income (loss) by component for the years ended December 31, 2013 and 2012 (in thousands):

<table><tr><td></td><td>Changes Related to Cash Flow Derivative Hedges</td><td>Changes in Defined Benefit Plans</td><td>Foreign Currency Translation Adjustments</td><td>Accumulated Other Comprehensive (Loss) Income</td></tr><tr><td>Accumulated comprehensive loss at January 1, 2012</td><td>$ (33,258)</td><td>$(30,256)</td><td>$ (12,424)</td><td>$ (75,938)</td></tr><tr><td>Other comprehensive income before reclassifications</td><td>58,138</td><td>(6,797)</td><td>(2,764)</td><td>48,577</td></tr><tr><td>Amounts reclassified from accumulated other comprehensive loss</td><td>(109,385)</td><td>2,230</td><td>—</td><td>(107,155)</td></tr><tr><td>Net current-period other comprehensive income</td><td>(51,247)</td><td>(4,567)</td><td>(2,764)</td><td>(58,578)</td></tr><tr><td>Accumulated comprehensive loss at January 1, 2013</td><td>(84,505)</td><td>(34,823)</td><td>(15,188)</td><td>(134,516)</td></tr><tr><td>Other comprehensive income before reclassifications</td><td>197,428</td><td>8,240</td><td>1,529</td><td>207,197</td></tr><tr><td>Amounts reclassified from accumulated other comprehensive loss</td><td>(69,599)</td><td>2,589</td><td>—</td><td>(67,010)</td></tr><tr><td>Net current-period other comprehensive income</td><td>127,829</td><td>10,829</td><td>1,529</td><td>140,187</td></tr><tr><td>Accumulated comprehensive income (loss) at December 31, 2013</td><td>$ 43,324</td><td>$ (23,994)</td><td>$ (13,659)</td><td>$ 5,671</td></tr></table>

The following table presents reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2013 and 2012 (in thousands):

<table><tr><td rowspan="2">Details about Accumulated Other Comprehensive Income (Loss) Components</td><td colspan="3">Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income</td></tr><tr><td>Year Ended December 31, 2013</td><td>Year Ended December 31, 2012</td><td>Affected Line Item in Statements of Comprehensive Income (Loss)</td></tr><tr><td>Gain (loss) on cash flow derivative hedges:</td><td></td><td></td><td></td></tr><tr><td>Cross currency swaps</td><td>$ —</td><td>$ 2,505</td><td>Other (expense) income</td></tr><tr><td>Cross currency swaps</td><td>(3,531)</td><td>(2,209)</td><td>Interest expense, net of interest capitalized</td></tr><tr><td>Foreign currency forward contracts</td><td>(1,797)</td><td>(953)</td><td>Depreciation and amortization expenses</td></tr><tr><td>Foreign currency forward contracts</td><td>27,423</td><td>(953)</td><td>Other (expense) income</td></tr><tr><td>Foreign currency forward contracts</td><td>(440)</td><td>—</td><td>Interest expense, net of interest capitalized</td></tr><tr><td>Fuel swaps</td><td>47,944</td><td>110,995</td><td>Fuel</td></tr><tr><td></td><td>69,599</td><td>109,385</td><td></td></tr><tr><td>Amortization of defined benefit plans:</td><td></td><td></td><td></td></tr><tr><td>Actuarial loss</td><td>(1,753)</td><td>(1,394)</td><td>Payroll and related</td></tr><tr><td>Prior service costs</td><td>(836)</td><td>(836)</td><td>Payroll and related</td></tr><tr><td></td><td>(2,589)</td><td>(2,230)</td><td></td></tr><tr><td>Total reclassifications for the period</td><td>$67,010</td><td>$107,155</td><td></td></tr></table>



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 14. FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS

## FAIR VALUE MEASUREMENTS

The estimated fair value of our financial instruments that are not measured at fair value, categorized based upon the fair value hierarchy, are as follows (in thousands):

<table><tr><td rowspan="2"></td><td colspan="6">Fair Value Measurements at December 31, 2013 Using</td><td colspan="6">Fair Value Measurements at December 31, 2012 Using</td></tr><tr><td>Total Carrying Amount</td><td>Total Fair Value</td><td>Level 1 \( ^{(1)} \)</td><td>Level 2 \( ^{(2)} \)</td><td>Level 3 \( ^{(3)} \)</td><td>Total Carrying Amount</td><td>Total Fair Value</td><td>Level 1 \( ^{(1)} \)</td><td>Level 2 \( ^{(2)} \)</td><td>Level 3 \( ^{(3)} \)</td><td></td><td></td></tr><tr><td>Description</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalent \( ^{(4)} \)</td><td>$ 204,687</td><td>$ 204,687</td><td>$ 204,367</td><td>$</td><td>—</td><td>$—</td><td>$ 194,855</td><td>$ 194,855</td><td>$ 194,855</td><td>$</td><td>—</td><td>$—</td><td></td></tr><tr><td>Total Assets</td><td>$ 204,687</td><td>$ 204,687</td><td>$ 204,367</td><td>$</td><td>—</td><td>$—</td><td>$ 194,855</td><td>$ 194,855</td><td>$ 194,855</td><td>$</td><td>—</td><td>$—</td><td></td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Long-term debt (including current portion of long-term debt) \( ^{(5)} \)</td><td>$8,074,804</td><td>$8,431,220</td><td>$2,888,255</td><td>$5,542,965</td><td>$—</td><td>$8,489,947</td><td>$8,859,310</td><td>$3,917,398</td><td>$4,941,912</td><td>$—</td><td></td><td></td><td></td></tr><tr><td>Total Liabilities</td><td>$8,074,804</td><td>$8,431,220</td><td>$2,888,255</td><td>$5,542,965</td><td>$—</td><td>$8,489,947</td><td>$8,859,310</td><td>$3,917,398</td><td>$4,941,912</td><td>$—</td><td></td><td></td><td></td></tr></table>

(1) Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

(2) Inputs other than quoted prices included within Level 1 that are observable for the liability, either directly or indirectly. For unsecured revolving credit facilities and unsecured term loans, fair value is determined utilizing the income valuation approach. This valuation model takes into account the contract terms of our debt such as the debt maturity and the interest rate on the debt. The valuation model also takes into account our credit-worthiness based on publicly available credit default swap rates.

(3) Inputs that are unobservable. The Company did not use any Level 3 inputs as of December 31, 2013 and December 31, 2012.

(4) Consists of cash and marketable securities with original maturities of less than 90 days.

(5) Consists of unsecured revolving credit facilities, unsecured senior notes, senior debentures and unsecured term loans. Does not include our capital lease obligations.

## Other Financial Instruments

The carrying amounts of accounts receivable, accounts payable, accrued interest and accrued expenses approximate fair value at December 31, 2013 and December 31, 2012.

Assets and liabilities that are recorded at fair value have been categorized based upon the fair value hierarchy. The following table presents information about the Company’s financial instruments recorded at fair value on a recurring basis (in thousands):

<table><tr><td rowspan="2"></td><td colspan="3">Fair Value Measurements at December 31, 2013 Using</td><td colspan="3">Fair Value Measurements at December 31, 2012 Using</td></tr><tr><td>Total Fair Value</td><td>Level 1 \( ^{(2)} \)</td><td>Level 2 \( ^{(2)} \)</td><td>Level 3 \( ^{(3)} \)</td><td>Total Fair Value</td><td>Level 1 \( ^{(2)} \)</td></tr><tr><td>Description</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivative financial instruments \( ^{(4)} \)</td><td>$188,576</td><td>—</td><td>188,576</td><td>—</td><td>$ 96,489</td><td>—</td></tr><tr><td>Investments \( ^{(5)} \)</td><td>$ 6,044</td><td>6,044</td><td>—</td><td>—</td><td>$ 6,231</td><td>—</td></tr><tr><td>Total Assets</td><td>$194,620</td><td>$6,044</td><td>$188,576</td><td>—</td><td>$102,720</td><td>$96,489</td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivative financial instruments \( ^{(6)} \)</td><td>$100,260</td><td>—</td><td>100,260</td><td>—</td><td>$ 85,119</td><td>—</td></tr><tr><td>Total Liabilities</td><td>$100,260</td><td>$ —</td><td>$100,260</td><td>$ —</td><td>$ 85,119</td><td>$ —</td></tr></table>

(1) Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

(2) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For foreign currency forward contracts, interest rate swaps, cross currency swaps and fuel swaps, fair value is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms, such as maturity as well as other inputs, such as foreign exchange rates and curves, fuel types, fuel curves and interest rate yield curves. For fuel call options, fair value is determined by using the prevailing market price for the instruments consisting of published price quotes for similar assets based on recent transactions in an active market. Fair value for foreign currency call options is determined by using standard option pricing models with inputs based on the options' contract terms, such as exercise price and maturity, and readily available public market data, such as foreign exchange curves, foreign exchange volatility levels and discount rates. All derivative instrument fair values take into account the creditworthiness of the counterparty and the Company.

(3) Inputs that are unobservable. The Company did not use any Level 3 inputs as of December 31, 2013 and December 31, 2012.

(4) Consists of foreign currency forward contracts, foreign currency call options, interest rate swaps, fuel swaps and purchased fuel call options. Please refer to the "Fair Value of Derivative Instruments" table for breakdown by instrument type.

(5) Consists of exchange-traded equity securities and mutual funds.

(6) Consists of interest rate swaps, fuel swaps, foreign currency forward contracts, foreign currency call options and sold fuel call options. Please refer to the "Fair Value of Derivative Instruments" table for breakdown by instrument type.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The reported fair values are based on a variety of factors and assumptions. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of December 31, 2013 or December 31, 2012, or that will be realized in the future, and do not include expenses that could be incurred in an actual sale or settlement.

The following table presents information about the Company’s goodwill, indefinite-life intangible assets, long-lived assets for our Pullmantur reporting unit and assets held for sale recorded at fair value on a nonrecurring basis (in thousands):

<table><tr><td rowspan="2"></td><td colspan="4">Fair Value Measurements at December 31, 2013 Using</td><td colspan="4">Fair Value Measurements at December 31, 2012 Using</td></tr><tr><td>Total Carrying Amount</td><td>Total Fair Value</td><td>Level 3</td><td>Total Impairment</td><td>Total Carrying Amount</td><td>Total Fair Value</td><td>Level 3</td><td>Total Imp airment</td></tr><tr><td>Pullmantur Goodwill \( ^{(1)} \)</td><td>152,107</td><td>$ —</td><td>—</td><td>$ —</td><td>$145,539</td><td>$145,539</td><td>145,539</td><td>$319,214</td></tr><tr><td>Indefinite-life intangible asset—Pullmantur trademarks and trade names \( ^{(2)} \)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Long-lived assets—Pullmantur aircraft \( ^{(3)} \)</td><td>$ 214,112</td><td>$ —</td><td>—</td><td>$ —</td><td>$204,866</td><td>$204,866</td><td>204,866</td><td>$ 17,356</td></tr><tr><td>Assets held for sale \( ^{(4)} \)</td><td>$ 49,507</td><td>$49,507</td><td>49,507</td><td>$13,529</td><td>$ 62,288</td><td>$ 62,288</td><td>62,288</td><td>$ 48,874</td></tr><tr><td></td><td>$ —</td><td>$ —</td><td>—</td><td>$19,985</td><td>$ 19,168</td><td>$ —</td><td>—</td><td>$ —</td></tr></table>

(1) For 2012, we estimated the fair value of the Pullmantur reporting unit using a probability-weighted discounted cash flow model. The principal assumptions used in the discounted cash flow model are projected operating results, weighted-average cost of capital, and terminal value. Significanty impacting these assumptions were the anticipated future transfer of vessels from our other cruise brands to Pullmantur. The discounted cash flow model used our 2013 projected operating results as a base. To that base we added future years' cash flows through 2017 assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments for this period on Pullmantur's reporting unit. We assigned a probability to each revenue and expense scenario. We discounted the projected cash flows using rates specific to Pullmantur's reporting unit based on its weighted-average cost of capital, which was determined to be 10%.

(2) For 2012, we estimated the fair value of our indefinite-life intangible asset using a discounted cash flow model and the relief-from-royalty method. We used a royalty rate of 3% based on comparable royalty agreements in the tourism and hospitality industry. These trademarks and trade names relate to Pullmantur and we have used a discount rate of 11%, comparable to the rate used in valuing the Pullmantur reporting unit.

(3) We estimated the fair value of our long-lived assets using an undiscounted cash flow model. A significant assumption in performing the undiscounted cash flow test was the number of years during which we expect to use these aircraft. Additionally, as of December 31, 2013, the expected operating use of the aircraft has modified the expected cash flows.

(4) For 2013, we estimated the fair value of assets held for sale related to the sale of Pullmantur's non-core businesses. This resulted in an impairment of $20.0 million mostly consisting of $18.2 million for property and equipment. See Note 16. Restructuring and Related Impairment Charges for further discussion.

The assets related to Pullmantur’s non-core businesses that met the criteria for held for sale classification as of December 31, 2013 were adjusted to the lower of their carrying amount or fair value less cost to sell. At December 31, 2013, the fair value of certain assets held for sale was lower than the carrying amount, resulting in a loss of $20.0 million which was recognized during the fourth quarter of 2013 and is reported within Restructuring and related impairment charges in our consolidated statements of comprehensive income (loss). See Note 16. Restructuring and Related Impairment Charges for further discussion.

In 2013 and 2012, long-lived assets with carrying amounts of $63.0 million and $116.3 million were written down to their fair values of $49.5 million and $62.3 million, respectively, resulting in losses of $13.5 million and $48.9 million, which were recognized during the fourth quarter of 2013 and 2012, respectively, and are reported within Restructuring and related impairment charges and Impairment of Pullmantur related assets, respectively, in our consolidated statements of comprehensive income (loss). Long-lived assets are reported within Property and equipment, net in our consolidated balance sheets.

In 2012, goodwill and indefinite-life intangible assets related to Pullmantur with a carrying amount of $459.1 million and $218.9 million, respectively, were written down to its implied fair value of $145.5 million and its fair value of $204.9 million, respectively. The impairment charges, totaling approximately $336.6 million, were recognized during the fourth quarter of 2012 and are reported within Impairment of Pullmantur related assets in our consolidated statements of comprehensive income (loss). Pullmantur's goodwill and indefinite-life intangible assets are reported within Goodwill and Other assets, respectively, in our consolidated balance sheets.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

## Interest Rate Risk

Our exposure to market risk for changes in interest rates relates to our long-term debt obligations including future interest payments. At December 31, 2013, approximately 34.6% of our long-term debt was effectively fixed as compared to 45.8% as of December 31, 2012. We use interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense.

Market risk associated with our long-term fixed rate debt is the potential increase in fair value resulting from a decrease in interest rates. We use interest rate swap agreements that effectively convert a portion of our fixed-rate debt to a floating-rate basis to manage this risk. At December 31, 2013 and 2012, we maintained interest rate swap agreements on the $420.0 million fixed rate portion of our Oasis of the Seas unsecured amortizing term loan. The interest rate swap agreements effectively changed the interest rate on the balance of the unsecured term loan, which was $280.0 million as of December 31, 2013, from a fixed rate of 5.41% to a LIBOR-based floating rate equal to LIBOR plus 3.87%, currently approximately 4.23%. These interest rate swap agreements are accounted for as fair value hedges.

During 2013, we entered into interest rate swap agreements that effectively changed the interest rate on the $650.0 million unsecured senior notes due 2022, from a fixed rate of 5.25% to a LIBOR-based floating rate equal to LIBOR plus 3.63%, currently approximately 3.87%. These interest rate swap agreements are accounted for as fair value hedges.

Market risk associated with our long-term floating rate debt is the potential increase in interest expense from an increase in interest rates. We use interest rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis to manage this risk. At December 31, 2013 and 2012, we maintained forward-starting interest rate swap agreements that hedge the anticipated unsecured amortizing term loans that will finance our purchase of Quantum of the Seas and Anthem of the Seas. Forward-starting interest rate swaps hedging the Quantum of the Seas loan will effectively convert the interest rate for $735.0 million of the anticipated loan balance from LIBOR plus 1.30% to a fixed rate of 3.74% (inclusive of margin) beginning in October 2014. Forward-starting interest rate swaps hedging the Anthem of the Seas loan will effectively convert the interest rate for $725.0 million of the anticipated loan balance from LIBOR plus 1.30% to a fixed rate of 3.86% (inclusive of margin) beginning in April 2015. These interest rate swap agreements are accounted for as cash flow hedges.

In addition, at December 31, 2013 and December 31, 2012, we maintained interest rate swap agreements on a portion of the Celebrity Reflection unsecured amortizing term loan. Beginning April 2013, the interest rate swap agreements effectively converted the interest rate on the balance of the unsecured term loan, which was $600.0 million as of December 31, 2013, from a floating rate equal to LIBOR plus 0.40% to a fixed rate (including applicable margin) of 2.85% through the term of the loan. These interest rate swap agreements are accounted for as cash flow hedges.

The notional amount of interest rate swap agreements related to outstanding debt and on our current unfunded financing arrangements as of December 31, 2013 and 2012 was $3.0 billion and $2.4 billion, respectively.

## Foreign Currency Exchange Rate Risk

## Derivative Instruments

Our primary exposure to foreign currency exchange rate risk relates to our ship construction contracts denominated in Euros, our foreign currency denominated debt and our international business operations. We enter into foreign currency forward contracts, collar options and cross currency swap agreements to manage portions of the exposure to movements in foreign currency exchange rates. As of December 31, 2013, the aggregate cost of our ships on order was approximately $4.7 billion, of which we had disbursed $518.8 million as of such date. Approximately 36.3% and 49.7% of the aggregate cost of the ships under construction was exposed to fluctuations in the Euro exchange rate at December 31, 2013 and 2012, respectively. The majority of our foreign currency forward contracts, collar options and cross currency swap agreements are accounted for as cash flow or fair value hedges depending on the designation of the related hedge.

During 2013, we entered into foreign currency forward contracts to hedge €365.0 million of our €745.0 million 5.625% unsecured senior notes due January 2014. These foreign currency forward contracts are accounted for as cash flow hedges and mature January 2014.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On a regular basis, we enter into foreign currency forward contracts to minimize the volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than our functional currency or the functional currencies of our foreign subsidiaries. During 2013, we maintained an average of approximately $406.7 million of these foreign currency forward contracts. These instruments are not designated as hedging instruments. Changes in the fair value of the foreign currency forward contracts were losses of approximately $19.3 million, which offset gains arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies of $13.4 million for the year ended December 31, 2013. Changes in the fair value of the foreign currency forward contracts were gains of approximately $7.7 million, which offset losses arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies of $11.8 million for the year ended December 31, 2012. Changes in the fair value of the foreign currency forward contracts were losses of approximately $1.1 million and losses arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies of $1.6 million, which resulted in a total loss of $2.7 million for the year ended December 31, 2011. These changes were recognized in earnings within Other (expense) income in our consolidated statements of comprehensive income (loss).

The notional amount of outstanding foreign exchange contracts including our forward contracts and collar options as of December 31, 2013 and 2012 was $2.5 billion and $1.2 billion, respectively.

## Non-Derivative Instruments

We consider our investments in our foreign operations to be denominated in relatively stable currencies and of a long-term nature. We partially address the exposure of our investments in foreign operations by denominating a portion of our debt in our subsidiaries' and investments' functional currencies and designating it as a hedge of these subsidiaries and investments. We had designated debt as a hedge of our net investments in Pullmantur and TUI Cruises of approximately €544.9 million and €481.7 million, or approximately $750.8 million and $635.1 million, through December 31, 2013 and 2012, respectively.

## Fuel Price Risk

Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our ships. We use fuel swap agreements and fuel call options to mitigate the financial impact of fluctuations in fuel prices.

Our fuel swap agreements are accounted for as cash flow hedges. At December 31, 2013, we have hedged the variability in future cash flows for certain fore-casted fuel transactions occurring through 2017. As of December 31, 2013 and 2012, we had the following outstanding fuel swap agreements:

<table><tr><td rowspan="2"></td><td colspan="2">Fuel Swap Agreements</td></tr><tr><td>As of December 31, 2013</td><td>As of December 31, 2012</td></tr><tr><td colspan="3">(metric tons)</td></tr><tr><td>2013</td><td>—</td><td>755,000</td></tr><tr><td>2014</td><td>762,000</td><td>635,000</td></tr><tr><td>2015</td><td>665,000</td><td>363,000</td></tr><tr><td>2016</td><td>372,000</td><td>104,000</td></tr><tr><td>2017</td><td>74,000</td><td>—</td></tr><tr><td colspan="3">Fuel Swap Agreements</td></tr><tr><td rowspan="2">Projected fuel purchases for year:</td><td>As of December 31, 2013</td><td>As of December 31, 2012</td></tr><tr><td colspan="2">(% hedged)</td></tr><tr><td>2013</td><td>—</td><td>55%</td></tr><tr><td>2014</td><td>57%</td><td>45%</td></tr><tr><td>2015</td><td>45%</td><td>25%</td></tr><tr><td>2016</td><td>25%</td><td>7%</td></tr><tr><td>2017</td><td>5%</td><td>—</td></tr></table>

At December 31, 2013 and 2012, $9.5 million and $47.2 million, respectively, of estimated unrealized net gains associated with our cash flow hedges pertaining to fuel swap agreements were expected to be reclassified to earnings from Accumulated other comprehensive income (loss) within the next twelve months. Reclassification is expected to occur as the result of fuel consumption associated with our hedged fore-casted fuel purchases.



## NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets were as follows:

Fair Value of Derivative Instruments

<table><tr><td rowspan="2"></td><td colspan="3">Asset Derivatives</td><td colspan="3">Liability Derivatives</td></tr><tr><td></td><td>As of December 31, 2013</td><td>As of December 31, 2012</td><td></td><td>As of December 31, 2013</td><td>As of December 31,
2012</td></tr><tr><td>Balance Sheet Location</td><td>Fair Value</td><td>Fair Value</td><td>Fair Value</td><td>Balance Sheet Location</td><td>Fair Value</td><td>Fair Value</td></tr></table>

Derivatives designated as hedging instruments under ASC 815-20 \( ^{(1)} \) 

<table><tr><td>Interest rate swaps</td><td>Other assets</td><td>$ 56,571</td><td>$ 5,099</td><td>Other long-term liabilities</td><td>$ 66,920</td><td>$55,471</td></tr><tr><td>Foreign currency forward contracts</td><td>Derivative financial instruments</td><td>61,596</td><td>951</td><td>Accrued expenses and other liabilities</td><td>—</td><td>338</td></tr><tr><td>Foreign currency forward contracts</td><td>Other assets</td><td>13,783</td><td>11,564</td><td>Other long-term liabilities</td><td>—</td><td>1,000</td></tr><tr><td>Foreign currency collar options</td><td>Other assets</td><td>22,172</td><td>8,974</td><td>Other long-term liabilities</td><td>—</td><td>—</td></tr><tr><td>Fuel swaps</td><td>Derivative financial instruments</td><td>10,902</td><td>48,624</td><td>Accrued expenses and other liabilities</td><td>1,657</td><td>1,761</td></tr><tr><td>Fuel swaps</td><td>Other assets</td><td>8,205</td><td>8,585</td><td>Other long-term liabilities</td><td>9,052</td><td>6,369</td></tr><tr><td>Total derivatives designated as hedging instruments under ASC 815-20</td><td></td><td>$173,229</td><td>$83,797</td><td></td><td>$ 77,629</td><td>$64,939</td></tr></table>

Derivatives not designated as hedging instruments under ASC 815-20

<table><tr><td>Foreign currency forward contracts</td><td>Derivative Financial Instruments</td><td>$ 15,347</td><td>$ —</td><td>Accrued expenses and other liabilities</td><td>$ 22,631</td><td>$ —</td></tr><tr><td>Foreign currency forward contracts</td><td>Other assets</td><td>—</td><td>4,440</td><td>Other long-term liabilities</td><td>—</td><td>11,475</td></tr><tr><td>Fuel swaps</td><td>Derivative financial instruments</td><td>—</td><td>—</td><td>Accrued expenses and other liabilities</td><td>—</td><td>475</td></tr><tr><td>Fuel call options</td><td>Derivative financial instruments</td><td>—</td><td>8,252</td><td>Accrued expenses and other liabilities</td><td>—</td><td>8,230</td></tr><tr><td>Total derivatives not designated as hedging instruments under ASC 815-20</td><td></td><td>15,347</td><td>12,692</td><td></td><td>22,631</td><td>20,180</td></tr><tr><td>Total derivatives</td><td></td><td>$188,576</td><td>$96,489</td><td></td><td>$100,260</td><td>$85,119</td></tr></table>

(1) Accounting Standard Codification 815-20 "Derivatives and Hedging."

The carrying value and line item caption of non-derivative instruments designated as hedging instruments recorded within our consolidated balance sheets were as follows:

<table><tr><td rowspan="2"></td><td colspan="3">Carrying Value</td></tr><tr><td>Balance Sheet Location</td><td>As of December 31, 2013</td><td>As of December 31, 2012</td></tr><tr><td>Non-derivative instrument designated as hedging instrument under ASC 815-20</td><td>Current portion of long-term debt</td><td>$477,442</td><td>$ 17,516</td></tr><tr><td>Foreign currency debt</td><td>Long-term debt</td><td>273,354</td><td>617,593</td></tr><tr><td>Foreign currency debt</td><td></td><td>$750,796</td><td>$635,109</td></tr></table>



## NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The effect of derivative instruments qualifying and designated as hedging instruments and the related hedged items in fair value hedges on the consolidated statements of comprehensive income (loss) was as follows:

<table><tr><td></td><td></td><td colspan="2">Amount of Gain (Loss) Recognized in Income on Derivative</td><td colspan="2">Amount of Gain (Loss) Recognized in Income on Hedged Item</td></tr><tr><td>Derivatives and Related Hedged Items under ASC 815-20 Fair Value Hedging Relationships</td><td>Location of Gain (Loss) Recognized in Income on Derivative and Hedged Item</td><td>Year Ended December 31, 2013</td><td>Year Ended December 31, 2012</td><td>Year Ended December 31, 2013</td><td>Year Ended December 31,2012</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate swaps</td><td>Interest expense, net of interest capitalized</td><td>$ 9,354</td><td>$13,682</td><td>$ 37,745</td><td>$32,389</td></tr><tr><td>Interest rate swaps</td><td>Other (expense) income</td><td>(71,630)</td><td>(1,763)</td><td>68,743</td><td>2,070</td></tr><tr><td>Interest rate swaps</td><td>Extinguishment of unsecured senior notes</td><td>—</td><td>—</td><td>—</td><td>9,698</td></tr><tr><td></td><td></td><td>$62,276)</td><td>$11,919</td><td>$106,488</td><td>$44,157</td></tr></table>

The effect of derivative instruments qualifying and designated as cash flow hedging instruments on the consolidated financial statements was as follows:

<table><tr><td rowspan="2"></td><td colspan="2">Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)</td><td rowspan="2">Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)</td><td colspan="2">Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)</td><td colspan="2">Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)</td></tr><tr><td>Year Ended December 31, 2013</td><td>Year Ended December 31, 2012</td><td>Year Ended December 31, 2013</td><td>Year Ended December 31, 2002</td><td>Year Ended December 31, 2013</td><td>Year Ended December 31 2012</td></tr><tr><td>Derivatives under ASC 815-20 Cash Flow Hedging Relationships</td><td>$ —</td><td>$ 851</td><td>Other (expense) income</td><td>$ —</td><td>$ 2,505</td><td>Other (expense) income</td><td>$ —</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Cross currency swaps</td><td>$ —</td><td>$ 851</td><td>Interest Expense</td><td>(3,531)</td><td>(2,209)</td><td>Other (expense) income</td><td>$ —</td></tr><tr><td>Cross currency swaps</td><td>—</td><td>—</td><td>Other (expense) income</td><td>—</td><td>—</td><td>Other (expense) income</td><td>—</td></tr><tr><td>Interest rate swaps</td><td>111,223</td><td>(44,971)</td><td>Depreciation and amortization expenses</td><td>(1,797)</td><td>(953)</td><td>Other (expense) income</td><td>9</td></tr><tr><td>Foreign currency forward contracts</td><td>68,364</td><td>11,928</td><td>Other (expense) income</td><td>27,423</td><td>(953)</td><td>Other (expense) income</td><td>—</td></tr><tr><td>Foreign currency forward contracts</td><td>—</td><td>—</td><td>Interest expense</td><td>(440)</td><td>—</td><td>Other (expense) income</td><td>—</td></tr><tr><td>Foreign currency forward contracts</td><td>—</td><td>—</td><td>Depreciation and amortization expenses</td><td>—</td><td>—</td><td>Other (expense) income</td><td>—</td></tr><tr><td>Foreign currency collar options</td><td>13,199</td><td>3,316</td><td>Other (expense) income</td><td>47,944</td><td>110,995</td><td>Other (expense) income</td><td>(3,413)</td></tr><tr><td>Fuel swaps</td><td>4,642</td><td>87,014</td><td>Fuel</td><td>47,944</td><td>110,995</td><td>Other (expense) income</td><td>(3,413)</td></tr><tr><td></td><td>$197,428</td><td>$ 58,138</td><td></td><td>$69,599</td><td>$109,385</td><td></td><td>$(2,973)</td></tr></table>

The effect of non-derivative instruments qualifying and designated as net investment hedging instruments on the consolidated financial statements was as follows:

<table><tr><td rowspan="2"></td><td colspan="2">Amount of Gain (Loss) Recognized in OCI (Effective Portion)</td><td rowspan="2">Location of Gain (Loss) in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)</td><td colspan="2">Amount of Gain (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)</td></tr><tr><td>Year Ended December 31, 2013</td><td>Year Ended December 31, 2012</td><td>Year Ended December 31, 2013</td><td>Year Ended December 31, 2002</td></tr><tr><td>Non-derivative Instruments under ASC 815-20 Net Investment Hedging Relationships</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign Currency Debt</td><td>$ (34,295)</td><td>$ (11,065)</td><td>Other (expense) income</td><td>$ —</td><td>$ —</td></tr><tr><td></td><td>$ (34,295)</td><td>$ (11,065)</td><td></td><td>$ —</td><td>$ —</td></tr></table>



## NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The effect of derivatives not designated as hedging instruments on the consolidated financial statements was as follows:

<table><tr><td rowspan="2">Derivatives Not Designated as Hedging Instruments under ASC 815-20</td><td rowspan="2">Location of Gain (Loss) Recognized in Income on Derivative</td><td colspan="2">Amount of Gain (Loss) Recognized in Income on Derivative</td></tr><tr><td>Year Ended December 31, 2013</td><td>Year Ended December 31, 2012</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>Other (expense) income</td><td>(21,244)</td><td>(7,152)</td></tr><tr><td>Fuel swaps</td><td>Other (expense) income</td><td>243</td><td>(3,058)</td></tr><tr><td>Fuel call options</td><td>Other (expense) income</td><td>(23)</td><td>(5,613)</td></tr><tr><td></td><td></td><td>(21,024)</td><td>(1,519)</td></tr></table>

## Credit Related Contingent Features

Our current interest rate derivative instruments may require us to post collateral if our Standard & Poor's and Moody's credit ratings remain below specified levels. Specifically, if on the fifth anniversary of entering into a derivative transaction and on all succeeding fifth-year anniversaries our credit ratings for our senior unsecured debt were to be below BBB- by Standard & Poor's and Baa3 by Moody's, then each counterparty to such derivative transaction with whom we are in a net liability position that exceeds the applicable minimum call amount may demand that we post collateral in an amount equal to the net liability position. The amount of collateral required to be posted following such event will change each time our net liability position increases or decreases by more than the applicable minimum call amount. If our credit rating for our senior unsecured debt is subsequently equal to, or above BBB- by Standard & Poor's or Baa3 by Moody's, then any collateral posted at such time will be released to us and we will no longer be required to post collateral unless we meet the collateral trigger requirement at the next fifth-year anniversary. Currently, our senior unsecured debt credit rating is BB with a stable outlook by Standard & Poor's and Bal with a stable outlook by Moody's. We currently have five interest rate derivative hedges that have a term of at least five years. The aggregate fair values of all derivative instruments with such credit-related contingent features in net liability positions as of December 31, 2013 and December 31, 2012 were $66.9 million and $55.5 million, respectively, which do not include the impact of any such derivatives in net asset positions. The earliest that any of the five interest rate derivative hedges will reach their fifth anniversary is November 2016. Therefore, as of December 31, 2013, we were not required to post collateral for any of our derivative transactions.

## NOTE 15. COMMITMENTS AND CONTINGENCIES

## Capital Expenditures

Our future capital commitments consist primarily of new ship orders. As of December 31, 2013, we had three Quantum-class ships and one Oasis-class ship on order for our Royal Caribbean International brand with an aggregate capacity of approximately 17,850 berths.

In 2013, we entered into an agreement with Meyer Werft to build the third Quantum-class ship for Royal Caribbean International. The ship will have a capacity of approximately 4,150 berths and is expected to enter service in the second quarter of 2016. We entered into a credit agreement for the financing of the ship for up to 80.0% of the ship's contract price. The credit agreement makes available to us, at delivery, an unsecured term loan in an amount up to €636.7 million, or approximately $877.3 million, based on the exchange rate at December 31, 2013. Euler Hermes Deutschland AG ("Hermes"), the official export credit agency of Germany, has agreed to guarantee to the lenders payment of 95.0% of the financing. The loan amortizes semi-annually and will mature 12 years following delivery of the ship. Interest on the loan will accrue at our election at either a fixed rate of 3.32% or a floating rate at LIBOR plus a margin of 1.00%. A commitment fee varying from 0.15% to 0.30% per annum is due through funding.

In 2013, we entered into a credit agreement for the financing of the third Oasis-class ship, which is scheduled for delivery in the second quarter of 2016. The credit agreement makes available to us, at delivery, an unsecured term loan in an amount up to €892.2 million, or approximately $1.2 billion, based on the exchange rate at December 31, 2013. Compagnie



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Francaise d'Assurance pour le Commerce Extérieur ("COFACE"), the official export credit agency of France, has agreed to guarantee to the lenders payment of 100% of the financing. The loan amortizes semi-annually and will mature 12 years following delivery of the ship. Interest on the loan will accrue at our election at either a fixed rate of 2.6% or a floating rate at EURIBOR plus a margin of 1.15%. A commitment fee varying from 0.15% to 0.30% per annum is due through funding.

As of December 31, 2013, the aggregate cost of our ships on order was approximately $4.7 billion, of which we had disbursed $518.8 million as of such date. Approximately 36.3% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at December 31, 2013. (See Note 14. Fair Value Measurements and Derivative Instruments).

## Litigation

A class action complaint was filed in June 2011 against Royal Caribbean Cruises Ltd. in the United States District Court for the Southern District of Florida on behalf of a purported class of stateroom attendants employed onboard Royal Caribbean International cruise vessels alleging that they were required to pay other crew members to help with their duties in violation of the U.S. Seaman's Wage Act. Plaintiffs seek judgments for damages, wage penalties and interest in an indeterminate amount. In May 2012, the Court granted our motion to dismiss the complaint on the basis that the applicable collective bargaining agreement requires any such claims to be arbitrated. The United States Court of Appeals, 11th Circuit affirmed the Court's dismissal and denied Plaintiff's petition for re-hearing and re-hearing en banc. We believe the underlying claims made against us are without merit, and we intend to vigorously defend ourselves against them. Because of the inherent uncertainty as to the outcome of this proceeding, we are unable at this time to estimate the possible impact of this matter on us.

We are routinely involved in other claims typical within the cruise vacation industry. The majority of these claims are covered by insurance. We believe the outcome of such claims, net of expected insurance recoveries, will not have a material adverse impact on our financial condition or results of operations and cash flows.

## Operating Leases

In July 2002, we entered into an operating lease denominated in British pound sterling for the Brilliance of the Seas. The lease payments vary based on sterling LIBOR and are included in Other operating expenses in our consolidated statements of comprehensive income (loss). Brilliance of the Seas lease expense amounts were approximately £12.3 million, £14.6 million and £15.9 million, or approximately $19.1 million, $23.3 million and $25.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. The lease has a contractual life of 25 years; however, both the lessor and we have certain rights to cancel the lease at year 18 (i.e. 2020) upon advance notice given approximately one year prior to cancellation. In the event of early termination at year 18, we have the option to cause the sale of the vessel at its fair value and to use the proceeds towards the applicable termination payment. Alternatively, we could opt at such time to make a termination payment of approximately £65.4 million, or approximately $108.3 million based on the exchange rate at December 31, 2013, and relinquish our right to cause the sale of the vessel. Under current circumstances we do not believe early termination of this lease is probable.

Under the Brilliance of the Seas operating lease, we have agreed to indemnify the lessor to the extent its after-tax return is negatively impacted by unfavorable changes in corporate tax rates, capital allowance deductions and certain unfavorable determinations which may be made by the United Kingdom tax authorities. These indemnifications could result in an increase in our lease payments. We are unable to estimate the maximum potential increase in our lease payments due to the various circumstances, timing or a combination of events that could trigger such indemnifications. The United Kingdom tax authorities are disputing the lessor's accounting treatment of the lease and the lessor and tax authorities are in discussions on the matter. If the characterization of the lease by the lessor is ultimately determined to be incorrect, we could be required to indemnify the lessor under certain circumstances. The lessor has advised us that they believe their characterization of the lease is correct. Based on the foregoing and our review of available information, we do not believe an indemnification payment is probable. However, if the lessor loses its dispute and we are required to indemnify the lessor, we cannot at this time predict the impact that such an occurrence would have on our financial condition and results of operations.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In addition, we are obligated under other noncancelable operating leases primarily for offices, warehouses and motor vehicles. As of December 31, 2013, future minimum lease payments under noncancelable operating leases were as follows (in thousands):

<table><tr><td>Year</td><td></td></tr><tr><td>2014</td><td>$ 47,097</td></tr><tr><td>2015</td><td>45,608</td></tr><tr><td>2016</td><td>42,876</td></tr><tr><td>2017</td><td>40,577</td></tr><tr><td>2018</td><td>38,626</td></tr><tr><td>Thereafter</td><td>285,146</td></tr><tr><td></td><td>$499,930</td></tr></table>

Total expense for all operating leases amounted to $57.5 million, $61.6 million and $60.2 million for the years 2013, 2012 and 2011, respectively.

## Other

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 in any material amount is probable.

If (i) any person other than A. Wilhelmsen AS. and Cruise Associates and their respective affiliates (the "Applicable Group") acquires ownership of more than 33% of our common stock and the Applicable Group owns less of our common stock than such person, or (ii) subject to certain exceptions, during any 24-month period, a majority of the Board is no longer comprised of individuals who were members of the Board on the first day of such period, we may be obligated to prepay indebtedness outstanding under the majority of our credit facilities, which we may be unable to replace on similar terms. Certain of our outstanding debt securities also contain change of control provisions that would be triggered by the acquisition of greater than 50% of our common stock by a person other than a member of the Applicable Group coupled with a ratings downgrade. If this were to occur, it would have an adverse impact on our liquidity and operations.
At December 31, 2013, we have future commitments to pay for our usage of certain port facilities, marine consumables, services and maintenance contracts as follows (in thousands):

<table><tr><td>Year</td><td></td></tr><tr><td>2014</td><td>$200,660</td></tr><tr><td>2015</td><td>139,540</td></tr><tr><td>2016</td><td>115,255</td></tr><tr><td>2017</td><td>117,663</td></tr><tr><td>2018</td><td>40,769</td></tr><tr><td>Thereafter</td><td>82,940</td></tr><tr><td></td><td>$696,827</td></tr></table>

## NOTE 16. RESTRUCTURING AND RELATED IMPAIRMENT CHARGES

For the year ended December 31, 2013, we incurred the following restructuring and related impairment charges in connection with our profitability initiatives (in thousands):

<table><tr><td>Restructuring exit costs</td><td>$23,432</td></tr><tr><td>Impairment charges</td><td>33,514</td></tr><tr><td>Restructuring and related impairment charges</td><td>$56,946</td></tr></table>

The following are the restructuring profitability initiatives that are at different stages of implementation.

## Consolidation of Global Sales, Marketing, General and Administrative Structure

One of our profitability initiatives relates to restructuring and consolidation of our global sales, marketing and general and administrative structure. During the third quarter of 2013, we moved forward with activities related to this initiative, including the consolidation of most of our call centers located outside of the United States and the establishment of brand dedicated sales, marketing and revenue management teams in key priority markets. This resulted in the elimination of approximately 500 shore-side positions, primarily from our international markets, and recognition of a liability for one-time termination benefits during the year ended December 31, 2013. Additionally, we incurred contract termination costs and other related costs consisting of legal and consulting fees to implement this initiative.

As a result of these actions, we incurred restructuring exit costs of $18.2 million for the year ended December 31, 2013, which are reported in Restructuring and related impairment charges in our consolidated statements of comprehensive income (loss). We expect to incur additional restructuring exit costs of approximately $1.2 million, through the end of 2014, to complete this initiative.



## NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes our restructuring exit costs related to the above initiative (in thousands):

<table><tr><td></td><td>Beginning Balance January 1, 2013</td><td>Accruals</td><td>Payments</td><td>Ending Balance December 31, 2013</td><td>Cumulative Charges Incurred</td><td>Expected Additional Expenses to Be Incurred \( ^{(1)} \)</td></tr><tr><td>Termination benefits</td><td>$—</td><td>$ 9,638</td><td>$1,323</td><td>$8,315</td><td>$ 9,638</td><td>$ 915</td></tr><tr><td>Contract termination costs</td><td>—</td><td>4,142</td><td>4,016</td><td>$ 126</td><td>4,142</td><td>—</td></tr><tr><td>Other related costs</td><td>—</td><td>4,379</td><td>2,982</td><td>$1,397</td><td>4,379</td><td>317</td></tr><tr><td>Total</td><td>$—</td><td>$18,159</td><td>$8,321</td><td>$9,838</td><td>$18,159</td><td>$1,232</td></tr></table>

(1) These amounts relate to restructuring exit costs associated with our Global Sales, Marketing and General and Administrative restructuring and consolidation efforts. It does not include charges related to other initiatives.

In connection with this initiative, we also expect to incur approximately $5.2 million of other costs through the end of 2014 which will primarily consist of call center transition costs and accelerated depreciation on leasehold improvements and will be classified within Marketing, selling and administrative expenses and Depreciation and amortization expenses, respectively, in our consolidated statements of comprehensive income (loss).

## Pullmantur Restructuring

## Restructuring Exit Costs

A second initiative relates to Pullmantur’s focus on the cruise business and expansion in Latin America. During the fourth quarter of 2013, we moved forward with activities related to this initiative. The activities include the opening of a Pullmantur regional head office in Panama to place operating management closer to the Latin American market. This resulted in the elimination of approximately 100 Pullmantur shore-side positions and recognition of a liability for one-time termination benefits during the fourth quarter of 2013. Additionally, we incurred contract termination costs and other related costs consisting of legal and consulting fees to implement this initiative.

As a result of these actions, we incurred restructuring exit costs of $5.3 million for the year ended December 31, 2013, which are reported in Restructuring and related impairment charges in our consolidated statements of comprehensive income (loss). We expect to incur additional restructuring exit costs of approximately $9.2 million, through the end of 2014, to complete this initiative.

The following table summarizes our restructuring exit costs related to the above initiative (in thousands):

<table><tr><td></td><td>Beginning Balance January 1, 2013</td><td>Accruals</td><td>Payments</td><td>Ending Balance December 31, 2013</td><td>Cumulative Charges Incurred</td><td>Expected Additional Expenses to Be Incurred \( ^{(2)} \)</td></tr><tr><td>Termination benefits</td><td>$—</td><td>$3,910</td><td>$—</td><td>$3,910</td><td>$3,910</td><td>$2,056</td></tr><tr><td>Contract termination costs</td><td>—</td><td>847</td><td>—</td><td>$ 847</td><td>847</td><td>—</td></tr><tr><td>Other related costs</td><td>—</td><td>516</td><td>—</td><td>$ 516</td><td>516</td><td>7,121</td></tr><tr><td>Total</td><td>$—</td><td>$5,273</td><td>$—</td><td>$5,273</td><td>$5,273</td><td>$9,177</td></tr></table>

(2) These amounts relate to restructuring exit costs associated with our Pullmantur restructuring. It does not include any charges related to other initiatives.

In connection with this initiative, we also expect to incur approximately $7.5 million of other costs through the end of 2014 primarily related to the sale of the Pullmantur non-core businesses, which we anticipate will be classified in Other (expense) income in our consolidated statements of comprehensive income (loss).

## Sale of Pullmantur Non-core Businesses

As part of our Pullmantur Restructuring, in December 2013, Pullmantur reached an agreement to sell the majority of its interest in its non-core businesses, the closing of which is subject to customary closing conditions. These non-core businesses include Pullmantur's land-based tour operations, travel agency and its 49.0% interest in its air business. In connection with the agreement, we will retain a 19.0% interest in the non-core businesses and will retain the aircraft which will be dry leased to Pullmantur Air. The non-core businesses met the accounting criteria to be classified as held for sale during the fourth quarter of 2013 which led to restructuring related impairment charges of $20.0 million to adjust the carrying value of assets held for sale to their fair value, less cost to sell. The impairment charge is reported in Restructuring and related impairment charges in our consolidated statements of comprehensive income (loss). Assets and liabilities held for sale are not material to our consolidated balance sheets.



# NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

We expect to have significant continuing involvement after the sale of non-core businesses, and as a result, the non-core businesses did not meet the criteria for discontinued operations reporting. In addition, due to an anticipated change in the nature of the cash flows to be generated by the Pullmantur aircraft, we reviewed the aircraft for impairment. We identified that the undiscounted future cash flows of the aircraft were less than their carrying value and recorded a restructuring related impairment charge of $13.5 million which is reported in Restructuring and related impairment charges in our consolidated statements of comprehensive income (loss).

See Note 5. Property and Equipment and Note 14. Fair Value Measurements and Derivative Instruments for further discussion.

## NOTE 17. QUARTERLY SELECTED FINANCIAL DATA (UNAUDITED)

<table><tr><td rowspan="2">(In thousands, except per share data)</td><td colspan="2">First Quarter</td><td colspan="2">Second Quarter</td><td colspan="2">Third Quarter</td><td colspan="2">Fourth Quarter</td></tr><tr><td>2013</td><td>2012</td><td>2013</td><td>2012</td><td>2013</td><td>2012</td><td>2013</td><td>2021</td></tr><tr><td>Total revenues(1)</td><td>$1,911,220</td><td>$1,834,480</td><td>$1,882,767</td><td>$1,821,004</td><td>$2,311,749</td><td>$2,226,390</td><td>$1,854,158</td><td>$1,806,150</td></tr><tr><td>Operating income (loss)(2)</td><td>$ 165,632</td><td>$ 135,375</td><td>$ 113,338</td><td>$ 96,905</td><td>$ 444,209</td><td>$ 452,137</td><td>$ 74,969</td><td>$ (281,307)</td></tr><tr><td>Net income (loss)(2)(3)</td><td>$ 76,226</td><td>$ 46,964</td><td>$ 24,747</td><td>$ (3,653)</td><td>$ 365,701</td><td>$ 367,779</td><td>$ 7,018</td><td>$ (392,803)</td></tr><tr><td>Earnings per share:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>$ 0.35</td><td>$ 0.22</td><td>$ 0.11</td><td>$ (0.02)</td><td>$ 1.66</td><td>$ 1.69</td><td>$ 0.03</td><td>$ (1.80)</td></tr><tr><td>Diluted</td><td>$ 0.35</td><td>$ 0.21</td><td>$ 0.11</td><td>$ (0.02)</td><td>$ 1.65</td><td>$ 1.68</td><td>$ 0.03</td><td>$ (1.80)</td></tr><tr><td>Dividends declared per share</td><td>$ 0.12</td><td>$ 0.10</td><td>$ 0.12</td><td>$ 0.10</td><td>$ 0</td><td>$ 0.12</td><td>$ 0.25</td><td>$ 0.12</td></tr></table>

(1) Our revenues are seasonal based on the demand for cruises. Demand is strongest for cruises during the Northern Hemisphere's summer months and holidays.

(2) Amounts for the second, third and fourth quarters of 2013 include restructuring charges of $1.7 million, $12.2 million and $9.5 million, respectively, and the fourth quarter of 2013 includes an impairment charge of $33.5 million to write down the assets held for sale related to the businesses to be sold and certain long-lived assets, consisting of aircraft owned and operated by Pullmantur Air, to their fair value. Amounts for the fourth quarter of 2012, include an impairment charge of $385.4 million to write down Pullmantur's goodwill to its implied fair value and to write down trademarks and trade names and certain long-lived assets, consisting of aircraft owned and operated by Pullmantur Air, to their fair value.

(3) Amounts for the fourth quarter of 2012, include a $33.7 million deferred tax expense to record a 100% valuation allowance related to our deferred tax assets for Pullmantur. In addition, we recorded a deferred tax benefit related to Pullmantur's trademarks and trade names of $5.2 million. These adjustments resulted in an increase of $28.5 million to Other (expense) income.






# ROYAL CARIBBEAN CRUISES LTD.

1050 Caribbean Way
Tel: 305.539.6000
Miami, FL 33132-2096 USA

## Shareholder Benefit Offer

Below you will find an exclusive shareholder benefit offer for an onboard credit that can be redeemed for an array of spectacular onboard services and amenities—for your personal enjoyment. Take advantage of this benefit as many times as you like each and every time you set sail on one of our fabulous ships.

## Shareholder Benefit Offer

• $250 Onboard Credit per Stateroom on Sailings of 14 or more nights.

• $200 Onboard Credit per Stateroom on Sailings of 10 to 13 nights.

• $100 Onboard Credit per Stateroom on Sailings of 6 to 9 nights.

• $ 50 Onboard Credit per Stateroom on Sailings of 5 nights or less.

Onboard credit is valid for any cruise vacation on Royal Caribbean International, Celebrity Cruises, or Azamara Club Cruises (excludes any charter sailings or sailings on the Celebrity Xpedition™ Galapagos). Additional terms and conditions apply.*

This benefit is offered exclusively to shareholders with a qualified booking, who directly own a minimum of 100 shares of Royal Caribbean Cruises Ltd. at time of sailing. To take advantage of this offer, please mail the following items to Royal Caribbean Cruises Ltd., Investor Benefit, P.O. Box 025511, Miami, FL 33102-5511:

• A photocopy of your shareholder proxy card or a current brokerage statement showing proof of ownership of at least 100 shares of Royal Caribbean Cruises Ltd.

• Your name (the owner of the 100 shares will receive the onboard credit)

• Your home address, telephone number and email address

• Your ship and sailing date

• Your confirmation number

• Your Crown & Anchor Society, Captain’s Club or Le Club Voyage Number (if any)

Alternatively, you may fax all the required documentation (in a single fax) to 305-373-6699 or email jpeg images of all required documentation to shareholderbenefit@rccl.com.
For Royal Caribbean International \( ^{®} \)  reservations contact your local travel agent or call 1-866-562-7625 or online at RoyalCaribbean.com.
For Celebrity Cruises \( ^{®} \)  reservations contact your local travel agent or call 1-800-647-2251 or online at CelebrityCruises.com.
For Azamara Club Cruises \( ^{SM} \)  reservations contact your local travel agent or call 1-877-999-9553 or online at AzamaraClubCruises.com.

*Benefit is non-transferable and not available to employees, agents of Royal Caribbean Cruises Ltd. or its subsidiaries and affiliates, travel agents and tour operators. Benefit is not combinable with other onboard credit offers, general loyalty offers, “dollars off” promotions, savings certificates, onboard chartered sailings, certain group sailings or bookings made at a reduced rate or travel agent rate. Shareholders have the option to choose between the shareholder benefit or the other offer. The Shareholder must own the Royal Caribbean Cruises Ltd. stock at time of sailing. Onboard credit is calculated in US dollars except on sailings where the onboard currency used is a foreign currency (in which case the onboard credit will be converted at a currency exchange rate determined by the cruise line) and is not redeemable for cash. Certificate value credited to onboard account at time of sailing. Any unused credit shall be forfeited. Credit is applied on a per stateroom basis; double occupancy. Single guests paying 200% of applicable fare shall receive full value of certificate. Only one shareholder credit per stateroom. Only one credit per shareholder on any one sailing. If you are requesting shareholder onboard credit for two or more separate cabins and shares are held jointly, a minimum of 100 shares per cabin booked must be held. Other terms and conditions may apply.

Option Codes: SB01, SB02, SB03, SB04, SB05, SB06, SB07, SB08






## SHAREHOLDER INFORMATION

## Annual Meeting

The annual meeting will be held on May 12, 2014 at 9 a.m. at the JW Marriott Marquis, 225 Biscayne Blvd. Way, Miami, FL 33131.

## Corporate Governance

We are committed to act in the highest ethical manner and to conduct our worldwide operations with honesty, fairness, integrity and trustworthiness. We have adopted a Code of Business Conduct and Ethics that applies to all of our employees.

The principal listing of our common stock is on the New York Stock Exchange (NYSE). We adhere to the Corporate Governance Listing Standards of the NYSE.

We have adopted Corporate Governance Principles which we believe comply with such listing standards. On June 13, 2013, our Chief Executive Officer submitted an annual certification to the NYSE that stated he was not aware of any violation by us of the NYSE Corporate Governance Listing Standards. Our Chief Executive Officer and Chief Financial Officer have furnished certifications regarding the quality of our public disclosure. These certifications are included as Exhibits 31.1, 31.2 and 32.1 of our Form 10-K for the year ended December 31, 2013.

The Corporate Governance Listing Standards of the NYSE are available at www.nyse.com/regulation/nyse/1182508124422.html. Our Corporate Governance Principles and Code of Business Conduct and Ethics are available at www.rclinvestor.com.

## Additional Information

You also may obtain copies of our annual report on Form 10-K, quarterly financial reports, press releases and corporate governance documents free of charge through our Investor Relations website at www.rclinvestor.com or by contacting the Investor Relations Department at our corporate headquarters.

## Corporate Office

Royal Caribbean Cruises Ltd.
1050 Caribbean Way
Miami, Florida 33132-2096
USA
(305) 539-6000
(305) 539-4440—TDD

www.royalcaribbean.com
www.celebritycruises.com
www.pullmanturcruises.es
www.azamaraclubcruises.com
www.cdfcroisieresdefrance.com
www.tiucruises.com
www.rclinvestor.com

## Independent Principal Auditor

PricewaterhouseCoopers LLP
1441 Brickell Avenue
Suite 1100
Miami, Florida 33131-2330

Transfer Agent & Registrar
American Stock Transfer
& Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
www.amstock.com

## Our Board of Directors

BERNARD W. ARONSON
Managing Partner, ACON Investments, LLC
JOHN F. BROCK
Chairman and Chief Executive Officer, Coca-Cola Enterprises, Inc.

RICHARD D. FAIN
Chairman and Chief Executive Officer, Royal Caribbean Cruises Ltd.

WILLIAM L. KIMSEY
Ernst & Young L.L.P. (retired)

ANN S. MOORE
Time Inc. (retired)

EYAL M. OFER
Chairman and Chief Executive Officer, Zodiac Maritime Agencies

THOMAS J. PRITZKER
Executive Chairman,
Hyatt Hotels Corporation

WILLIAM K. REILLY
Founding Partner, Aqua International Partners L.P.

BERNT REITAN
Alcoa Inc. (retired)

VAGN O. SØRENSEN
Former President and Chief Executive Officer, Austrian Airlines Group

ARNE ALEXANDER WILHELMSEN
Chairman, AWILHELMSEN AS

## Executive Officers

RICHARD D. FAIN
Chairman and Chief Executive Officer
ADAM M. GOLDSTEIN
President and Chief Executive Officer, Royal Caribbean International
MICHAEL W. BAYLEY
President and Chief Executive Officer, Celebrity Cruises
LAWRENCE PIMENTEL
President and Chief Executive Officer, Azamara Club Cruises
JASON T. LIBERTY
Senior Vice President and Chief Financial Officer
HARRI U. KULOVAARA
Executive Vice President, Maritime
LISA LUTOFF-PERLO
Executive Vice President, Operations,
Royal Caribbean International
BRADLEY H. STEIN
Senior Vice President, General Counsel
HENRY L. PUJOL
Senior Vice President, Chief Accounting Officer



IMAGINATION. BOLDNESS. ZEST.
ENTHUSIASM. INTUITION. DARING.
CREATIVITY. PASSION. AUDACITY.
INTELLIGENCE. WISDOM. INSIGHT.
CONFIDENCE. JUDGMENT. BEAUTY.
CURIOSITY. PERCEPTION. VISION.
BELIEF. CONVICTION. INNOVATION.
EXUBERANCE. INSPIRATION. TRUST.

Royal Caribbean Cruises Ltd.
1050 Caribbean Way, Miami, Florida 33132-2096 USA