ROYAL CARIBBEAN CRUISES LTD [RCL] Filings

10-Q 1 rcl-20220930.htm 10-Q rcl-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			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						98-0081645
(State or other jurisdiction of incorporation or organization)						(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)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

RCL

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

There were 255,182,015 shares of common stock outstanding as of October 31, 2022.

Table of Contents

ROYAL CARIBBEAN CRUISES LTD.

TABLE OF CONTENTS


			Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements			1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25

Item 3. Quantitative and Qualitative Disclosures About Market Risk			42

Item 4. Controls and Procedures			42

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			44

Item 1A. Risk Factors			44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			57

Item 6. Exhibits			58

SIGNATURES			59

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited; in thousands, except per share data)


	Quarter Ended September 30,
	2022		2021
Passenger ticket revenues	$	2,020,974	$	280,153
Onboard and other revenues	972,101		176,805
Total revenues	2,993,075		456,958
Cruise operating expenses:
Commissions, transportation and other	484,054		64,780
Onboard and other	220,216		42,703
Payroll and related	304,369		265,974
Food	194,966		48,950
Fuel	316,214		118,127
Other operating	436,444		273,157
Total cruise operating expenses	1,956,263		813,691
Marketing, selling and administrative expenses	373,116		323,422
Depreciation and amortization expenses	355,085		325,907
Impairment and credit losses (recoveries)	10,186		(238)
Operating Income (Loss)	298,425		(1,005,824)
Other income (expense):
Interest income	11,953		3,786
Interest expense, net of interest capitalized	(352,187)		(430,661)
Equity investment income (loss)	73,997		(29,085)
Other income	780		37,230
	(265,457)		(418,730)
Net Income (Loss)	$	32,968	$	(1,424,554)
Earnings (Loss) per Share:
Basic	$	0.13	$	(5.59)
Diluted	$	0.13	$	(5.59)
Weighted-Average Shares Outstanding:
Basic	255,071		254,713
Diluted	255,378		254,713
Comprehensive Loss
Net Income (Loss)	$	32,968	$	(1,424,554)
Other comprehensive loss:
Foreign currency translation adjustments	11,498		5,022
Change in defined benefit plans	7,226		(3,627)
Loss on cash flow derivative hedges	(259,949)		(13,264)
Total other comprehensive loss	(241,225)		(11,869)
Comprehensive Loss	$	(208,257)	$	(1,436,423)

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

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited; in thousands, except per share data)


	Nine Months Ended September 30,
	2022		2021
Passenger ticket revenues	$	4,091,035	$	323,782
Onboard and other revenues	2,145,513		226,104
Total revenues	6,236,548		549,886
Cruise operating expenses:
Commissions, transportation and other	964,256		72,917
Onboard and other	450,225		55,782
Payroll and related	981,128		530,250
Food	450,376		74,618
Fuel	779,873		219,058
Other operating	1,206,036		569,383
Total cruise operating expenses	4,831,894		1,522,008
Marketing, selling and administrative expenses	1,138,571		867,021
Depreciation and amortization expenses	1,046,094		959,512
Impairment and credit losses (recoveries)	(584)		39,934
Operating Loss	(779,427)		(2,838,589)
Other income (expense):
Interest income	21,765		13,317
Interest expense, net of interest capitalized	(932,552)		(1,007,986)
Equity investment income (loss)	29,759		(137,044)
Other income	4,699		66,771
	(876,329)		(1,064,942)
Net Loss	$	(1,655,756)	$	(3,903,531)
Loss per Share:
Basic	$	(6.49)	$	(15.56)
Diluted	$	(6.49)	$	(15.56)
Weighted-Average Shares Outstanding:
Basic	254,953		250,808
Diluted	254,953		250,808
Comprehensive Loss
Net Loss	$	(1,655,756)	$	(3,903,531)
Other comprehensive (loss) income:
Foreign currency translation adjustments	31,958		11,255
Change in defined benefit plans	34,991		3,748
(Loss) Gain on cash flow derivative hedges	(148,541)		48,514
Total other comprehensive (loss) income	(81,592)		63,517
Comprehensive Loss	$	(1,737,348)	$	(3,840,014)

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

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	As of
	September 30,		December 31,
	2022		2021
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	1,566,213	$	2,701,770
Trade and other receivables, net of allowances of $10,542 and $13,411 at September 30, 2022 and December 31, 2021, respectively	534,414		408,067
Inventories	237,186		150,224
Prepaid expenses and other assets	435,709		286,026
Derivative financial instruments	63,524		54,184
Total current assets	2,837,046		3,600,271
Property and equipment, net	27,693,240		25,907,949
Operating lease right-of-use assets	554,424		542,128
Goodwill	809,201		809,383
Other assets, net of allowances of $72,160 and $86,781 at September 30, 2022 and December 31, 2021, respectively	1,570,279		1,398,624
Total assets	$	33,464,190	$	32,258,355
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt	$	3,945,145	$	2,243,131
Current portion of operating lease liabilities	75,179		68,922
Accounts payable	623,565		545,978
Accrued interest	274,022		251,974
Accrued expenses and other liabilities	858,936		887,575
Derivative financial instruments	242,648		127,236
Customer deposits	3,774,499		3,160,867
Total current liabilities	9,793,994		7,285,683
Long-term debt	19,384,226		18,847,209
Long-term operating lease liabilities	542,576		534,726
Other long-term liabilities	537,970		505,181
Total liabilities	30,258,766		27,172,799

Shareholders’ equity
Preferred stock ($0.01 par value; 20,000,000 shares authorized; none outstanding)	—		—
Common stock ($0.01 par value; 500,000,000 shares authorized; 283,198,625 and 282,703,246 shares issued, September 30, 2022 and December 31, 2021, respectively)	2,832		2,827
Paid-in capital	7,270,521		7,557,297
(Accumulated deficit) retained earnings	(1,207,223)		302,276
Accumulated other comprehensive loss	(792,477)		(710,885)
Treasury stock (28,018,385 and 27,882,987 common shares at cost, September 30, 2022 and December 31, 2021, respectively)	(2,068,229)		(2,065,959)
Total shareholders’ equity	3,205,424		5,085,556
Total liabilities and shareholders’ equity	$	33,464,190	$	32,258,355

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


ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
	Nine Months Ended September 30,
	2022		2021
Operating Activities
Net Loss	$	(1,655,756)	$	(3,903,531)
Adjustments:
Depreciation and amortization	1,046,094		959,512
Impairment and credit losses (recoveries)	(584)		39,934
Net deferred income tax benefit	(14,345)		(31,395)
Loss (gain) on derivative instruments not designated as hedges	175,686		(11,560)
Share-based compensation expense	24,285		55,435
Equity investment (income) loss	(29,759)		137,044
Amortization of debt issuance costs	118,307		94,511
Amortization of debt discounts and premiums	11,650		93,517
Loss on extinguishment of debt	16,449		138,759
Changes in operating assets and liabilities:
Increase in trade and other receivables, net	(173,555)		(225,535)
Increase in inventories	(86,962)		(26,711)
Increase in prepaid expenses and other assets	(108,429)		(123,935)
Increase in accounts payable	79,249		107,215
Increase (decrease) in accrued interest	22,053		(3,685)
Decrease in accrued expenses and other liabilities	(18,973)		(5,911)
Increase in customer deposits	613,632		1,031,930
Other, net	(113,783)		1,637
Net cash used in operating activities	(94,741)		(1,672,769)
Investing Activities
Purchases of property and equipment	(2,543,266)		(1,654,271)
Cash received on settlement of derivative financial instruments	42,958		27,497
Cash paid on settlement of derivative financial instruments	(389,387)		(54,916)
Investments in and loans to unconsolidated affiliates	(614)		(70,084)
Cash received on loans to unconsolidated affiliates	14,030		25,647
Proceeds from the sale of property and equipment and other assets	66		175,439
Other, net	5,262		(9,546)
Net cash used in investing activities	(2,870,951)		(1,560,234)

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


ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
	Nine Months Ended September 30,
	2022		2021
Financing Activities
Debt proceeds	7,207,566		4,144,077
Debt issuance costs	(222,787)		(159,147)
Repayments of debt	(5,135,323)		(2,212,510)
Premium on repayment of debt	—		(135,372)
Repayments of commercial paper notes	—		(414,570)
Proceeds from common stock issuances	—		1,621,860
Other, net	(16,556)		(5,779)
Net cash provided by financing activities	1,832,900		2,838,559
Effect of exchange rate changes on cash and cash equivalents	(2,765)		(704)
Net decrease in cash and cash equivalents	(1,135,557)		(395,148)
Cash and cash equivalents at beginning of period	2,701,770		3,684,474
Cash and cash equivalents at end of period	$	1,566,213	$	3,289,326
Supplemental Disclosure
Cash paid during the period for:
Interest, net of amount capitalized	$	752,623	$	630,740
Non-cash Investing Activities
Notes receivable issued upon sale of property and equipment and other assets	$	—	$	16,000
Purchase of property and equipment included in accounts payable and accrued expenses and other liabilities	$	26,026	$	22,925
Acquisition of property and equipment from assumed debt	$	275,000	$	—
Non-cash Financing Activity
Debt related to acquisition of property and equipment	$	275,000	$	—

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

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited; in thousands)


	Common Stock		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders' Equity
Balance at July 1, 2022	$	2,831	$	7,254,939	$	(1,240,191)	$	(551,252)	$	(2,068,229)	$	3,398,098
Activity related to employee stock plans	1		15,582		—		—		—		15,583




Changes related to cash flow derivative hedges	—		—		—		(259,949)		—		(259,949)
Change in defined benefit plans	—		—		—		7,226		—		7,226
Foreign currency translation adjustments	—		—		—		11,498		—		11,498

Net Income	—		—		32,968		—		—		32,968
Balance at September 30, 2022	$	2,832	$	7,270,521	$	(1,207,223)	$	(792,477)	$	(2,068,229)	$	3,205,424


	Common Stock		Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders' Equity
Balance at January 1, 2022	$	2,827	$	7,557,297	$	302,276	$	(710,885)	$	(2,065,959)	$	5,085,556
Activity related to employee stock plans	5		20,864		37		—		—		20,906

Cumulative effect of adoption of Accounting Standards Update 2020-06	—		(307,640)		146,220		—		—		(161,420)


Changes related to cash flow derivative hedges	—		—		—		(148,541)		—		(148,541)
Change in defined benefit plans	—		—		—		34,991		—		34,991
Foreign currency translation adjustments	—		—		—		31,958		—		31,958
Purchase of treasury stock	—		—		—		—		(2,270)		(2,270)
Net Loss	—		—		(1,655,756)		—		—		(1,655,756)
Balance at September 30, 2022	$	2,832	$	7,270,521	$	(1,207,223)	$	(792,477)	$	(2,068,229)	$	3,205,424

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

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited; in thousands)


	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders' Equity
Balance at July 1, 2021	$	2,826	$	7,527,305	$	3,083,798	$	(663,955)	$	(2,065,959)	$	7,884,015
Activity related to employee stock plans	1		20,045		—		—		—		20,046
Common stock issuance	—		(140)		—		—		—		(140)
Changes related to cash flow derivative hedges	—		—		—		(13,264)		—		(13,264)
Change in defined benefit plans	—		—		—		(3,627)		—		(3,627)
Foreign currency translation adjustments	—		—		—		5,022		—		5,022
Net Loss attributable to Royal Caribbean Cruises Ltd.	—		—		(1,424,554)		—		—		(1,424,554)
Balance at September 30, 2021	$	2,827	$	7,547,210	$	1,659,244	$	(675,824)	$	(2,065,959)	$	6,467,498


	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders' Equity
Balance at January 1, 2021	$	2,652	$	5,998,574	$	5,562,775	$	(739,341)	$	(2,063,991)	$	8,760,669
Activity related to employee stock plans	5		52,799		—		—		—		52,804
Common stock issuance	170		1,495,837		—		—		—		1,496,007
Changes related to cash flow derivative hedges	—		—		—		48,514		—		48,514
Change in defined benefit plans	—		—		—		3,748		—		3,748
Foreign currency translation adjustments	—		—		—		11,255		—		11,255
Purchase of treasury stock	—		—		—		—		(1,968)		(1,968)
Net Loss attributable to Royal Caribbean Cruises Ltd.	—		—		(3,903,531)		—		—		(3,903,531)
Balance at September 30, 2021	$	2,827	$	7,547,210	$	1,659,244	$	(675,824)	$	(2,065,959)	$	6,467,498

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

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As used in this Quarterly Report on Form 10-Q, the terms “Royal Caribbean,” "Royal Caribbean Group," 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,” and "Silversea Cruises" refer to our wholly owned global cruise brands. Throughout this Quarterly Report on Form 10-Q, we also refer to our partner brands in which we hold an ownership interest, including “TUI Cruises” and "Hapag-Lloyd Cruises." However, because these partner brands are unconsolidated investments, our operating results and other disclosures herein do not include these brands 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 Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021.

This Quarterly Report on Form 10-Q also includes trademarks, 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.

Note 1. General

Description of Business

We are a global cruise company. We own and operate three global cruise brands: Royal Caribbean International, Celebrity Cruises and Silversea Cruises (collectively, our "Global Brands"). We also own a 50% joint venture interest in TUI Cruises GmbH ("TUIC"), which operates the German brands TUI Cruises and Hapag-Lloyd Cruises (collectively, our "Partner Brands"). We account for our investments in our Partner Brands under the equity method of accounting. Together, our Global Brands and our Partner Brands have a combined fleet of 64 ships as of September 30, 2022. Our ships offer a selection of worldwide itineraries that call on more than 1,000 destinations on all seven continents.

Management's Plan and Liquidity

During 2021, we restarted our global cruise operations in a phased manner, following our voluntary suspension of global cruise operations that commenced in March of 2020 in response to the COVID-19 pandemic. Since then, we have steadily increased the number of ships that have returned to service, with our full fleet in service by June 2022. Effective July 18, 2022, the U.S. Centers for Disease Control and Prevention ended its COVID-19 Program for Cruise Ships, which has allowed us to modify our health and safety protocols to more closely align with the broader travel industry. We announced the easing of testing and vaccination protocols for most itineraries on August 23, 2022.

Since the start of the pandemic, we have implemented a number of proactive measures to mitigate the financial and operational impacts of COVID-19 and to manage our liquidity. As part of our liquidity management, we rely on estimates of our future liquidity requirements, which include numerous assumptions that are subject to various risks and uncertainties. The principal assumptions used to estimate our future liquidity requirements consist of:

•our continued cruise operations and expected timing of cash collections for cruise bookings;

•an expected continued moderate increase in revenue per available passenger cruise day;

•an expected increase in occupancy levels over time until we reach historical occupancy levels; and

•inflationary increases to our operating costs, mostly impacting the expected cost of fuel and food.

As of September 30, 2022, we had liquidity of $3.1 billion, including $0.8 billion of undrawn revolving credit facility capacity, $1.6 billion in cash and cash equivalents, and a $0.7 billion commitment for a 364-day term loan facility available to draw on at any time on or prior to August 11, 2023. Our revolving credit facilities were utilized through a combination of amounts drawn and letters of credit issued under the facilities as of September 30, 2022.

During the nine months ended September 30, 2022, we entered into various transactions to refinance $6.9 billion of 2022 and 2023 debt maturities. Refer to Note 7. Debt for further information regarding these transactions.

Based on our refinancing actions as well as our present financial condition and the aforementioned assumptions on liquidity, we believe that we have sufficient financial resources to fund our obligations for at least the next twelve months from the issuance of these financial statements. Additionally, we will continue to pursue various opportunities to raise additional

capital to fund obligations associated with future debt maturities and/or to extend the maturity dates associated with our existing indebtedness or facilities. Actions to raise capital may include issuances of debt, convertible debt or equity in private or public transactions or entering into new or extended credit facilities.

As of September 30, 2022, we were in compliance with our financial covenants and we estimate we will be in compliance for the next twelve months. If the Company is unable to comply with the applicable financial covenants, including maintaining the applicable minimum liquidity requirement, it could have a significant adverse effect on the Company’s business, financial condition and operating results.

Basis for Preparation of Consolidated Financial Statements

The unaudited consolidated financial statements are presented pursuant to the rules and regulations of the Securities and Exchange Commission. In our opinion, these statements include all adjustments necessary for a fair statement of the results of the interim periods reported herein. Adjustments consist only of normal recurring items, except for any items discussed in the notes below. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted as permitted by such Securities and Exchange Commission rules and regulations. Estimates are required for the preparation of financial statements in accordance with these principles. Actual results could differ from these estimates. Refer to Note 2. Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2021 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. Refer to 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.

Effective March 19, 2021, we sold our wholly-owned brand, Azamara Cruises ("Azamara"), including its three-ship fleet and associated intellectual property, to Sycamore Partners for $201 million, before closing adjustments. The March 2021 sale of Azamara did not represent a strategic shift that will have a major effect on our operations and financial results, as we continue to provide similar itineraries to and source passengers from the markets served by the Azamara business. Therefore, the sale of Azamara did not meet the criteria for discontinued operations reporting. Effective March 19, 2021, we no longer consolidate Azamara's balance sheet nor recognize its results of operations in our consolidated financial statements. We recognized an immaterial gain on the sale during the quarter ended March 31, 2021 and have agreed to provide certain transition services to Azamara for a period of time for a fee.

Prior to October 1, 2021, we consolidated the operating results of Silversea Cruises on a three-month reporting lag to allow for more timely preparation of our consolidated financial statements. Effective October 1, 2021, we eliminated the three- month reporting lag to reflect Silversea Cruises' financial position, results of operations and cash flows concurrently and consistently with the fiscal calendar of the Company ("elimination of the Silversea reporting lag"). The elimination of the Silversea reporting lag represents a change in accounting principle, which we believe to be preferable, because it provides more current information to the users of our financial statements. A change in accounting principle requires retrospective application, if material. The impact of the elimination of the reporting lag was immaterial to prior periods and was immaterial for our fiscal year ended December 31, 2021. As a result, we have accounted for this change in accounting principle in our consolidated results for the quarter and year ended December 31, 2021. Accordingly, the results of Silversea Cruises from July 1, 2022, through September 30, 2022 and from January 1, 2022 through September 30, 2022 are included in our consolidated statement of comprehensive loss for the quarter ended and nine months ended September 30, 2022, respectively. The results of Silversea Cruises from April 1, 2021 through June 30, 2021 and from October 1, 2020 through June 30, 2021 are included in our consolidated statement of comprehensive loss for the quarter ended and nine months ended September 30, 2021, respectively.

Note 2. Summary of Significant Accounting Policies

Adoption of Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU") No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06"), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative under Accounting Standards Codification ("ASC") 815, Derivatives and Hedging ("ASC 815") or for convertible debt issued at a substantial

premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for it. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The guidance also decreases interest expense due to the reversal of the remaining non-cash convertible debt discount. On January 1, 2022, we adopted this pronouncement using the modified retrospective approach to recognize our convertible notes as single liability instruments given they do not qualify as derivatives under ASC 815, nor were they issued at a substantial premium. Accordingly, as of January 1, 2022, we recorded a $161.4 million increase to debt, primarily as a result of the reversal of the remaining non-cash convertible debt discount, as well as a reduction of $307.6 million to additional paid in capital, which resulted in a cumulative effect on adoption of approximately $146.2 million to increase retained earnings.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. Subsequently, in January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which presents amendments to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance in both ASUs was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We adopted the new guidance during the quarter ended September 30, 2022. The impact to our consolidated financial statements, if any, will be dependent on the timing and terms of any future contract modifications related to a change in reference rate.

Recent Accounting Pronouncements

In September 2022, the FASB issued ASU No. 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50) - Disclosure of Supplier Finance Program Obligations. This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. This ASU is expected to improve financial reporting by requiring new disclosures about the programs, thereby allowing financial statement users to better consider the effect of the programs on an entity’s working capital, liquidity, and cash flows. This ASU is effective for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information which is effective for fiscal years beginning after December 15, 2023. We are currently evaluating the impact of the new guidance on the disclosures to our consolidated financial statements.

Note 3. Revenues

Revenue Recognition

Revenues are measured based on consideration specified in our contracts with customers and are recognized as the related performance obligations are satisfied.

The majority of our revenues are derived from passenger cruise contracts which are reported within Passenger ticket revenues in our consolidated statements of comprehensive loss. Our performance obligation under these contracts is to provide a cruise vacation in exchange for the ticket price. We satisfy this performance obligation and recognize revenue over the duration of each cruise, which generally ranges from two to 24 nights.

Passenger ticket revenues include charges to our guests for port costs that vary with passenger head counts. These type of port costs, along with port costs that do not vary by passenger head counts, are included in our cruise operating expenses. The amounts of port costs charged to our guests and included within Passenger ticket revenues on a gross basis were $210.2 million and $29.3 million for the quarters ended September 30, 2022 and 2021, respectively, and $446.3 million and $33.9 million for the nine months ended September 30, 2022 and 2021, respectively.

Our total revenues also include Onboard and other revenues, which consist primarily of revenues from the sale of goods and services onboard our ships that are not included in passenger ticket prices. We receive payment before or concurrently with the transfer of these goods and services to cruise passengers and recognize revenue over the duration of the related cruise.

As a practical expedient, we have omitted disclosures on our remaining performance obligations as the duration of our contracts with customers is less than a year.

Disaggregated Revenues

The following table disaggregates our total revenues by geographic regions where we provide cruise itineraries (in thousands):


	Quarter Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues by itinerary
North America (1)	$	1,638,226	$	279,339	$	3,871,356	$	290,971
Asia/Pacific	46,137		22,651		125,986		71,854
Europe	1,002,936		111,054		1,531,495		114,819
Other regions(2)	169,200		8,561		408,222		11,270
Total revenues by itinerary	2,856,499		421,605		5,937,059		488,914
Other revenues(3)	136,576