Forecasting for the Love Boat: Royal Caribbean Cruises in 1998(

North America, but may fly to any part of the world to embark on a “North American”cruise. While all major cruise lines offer “Air and Sea” options, this is really just aconvenience for their customers. The air portion is priced at cost, and this portion of thetrip is handled completely by the airline. Virtually all cruise purchases take placethrough a local travel agent.Demand for cruise vacations has growth rapidly over the past two decades as thefigure below illustrates, with the only decrease in demand occurring in 1994-1995.Further, the average length of a cruise trip has grown to approximately 6.6 days, reachinglevels not experienced since the early 1980s. Because of the fixed/variable cost structurein the cruise industry, longer trips are typically more profitable than short trips, so theindustry has welcomed this trend.60007annual cruise passengers (thousands)500040003000200010006.86.66.46.265.801980198119821983198419851986198719881989199019911992average cruise length (days)1993199419951996199719985.6The North American cruise industry is composed of two very large companiesand many small ones. Carnival Cruise Lines is the largest firm with 33 ships carrying2,045,000 passengers in 1998, 38% of the North American cruise market. RoyalCaribbean Cruises is the second largest company with 16 ships carrying 1,841,000passengers in 1998, a total of 34% of the North American market. A host of smallercruise lines make up the rest of the industry, dividing 1,542,000 passengers between 96vessels. The relative market shares are illustrated in the figure below.

1998 Market Share100%154200080%691079660%40%298001841000All OtherRoyal Caribbean CruisesCarnival Cruises1620%333946620450000%ships berths passengersThe Cruise ExperienceThe cruise industry offers a wide variety of ship sizes, luxury levels anditineraries. From small, quasi-research vessels that probe Artic passages to massive“mega-ships” that resemble floating Malls of America, the cruise industry offerssomething for everyone. The Caribbean is the most common destination for cruises soldin North America, as seen in the table below, with approximately 39% of all passengerdaysdevoted to this destination. However, the table also shows that there has been asignificant increase in demand for trips to locations such as the Mediterranean, Alaskaand Europe. The latest trend is for huge ships that carry as many as 3000 guests, andoffer a wide variety of entertainment alternatives. Such vessels feature rock-climbing,ice-skating, miniature golf, cinemas, discos, spa facilities, libraries, casinos, extensivelive entertainment, and entire shopping malls, all onboard the ship. The focus of thesecruise alternatives is on the vessel, rather than the destination. Bob Dickinson, thepresident of Carnival Cruises, remarked “Now, the cruise itself is the destination –magnificent floating resorts. To me, the itinerary is a little Green Stamp, a little extrathing.”Destination (total bed-days) 1987 % of Total 1995 % of Total 1998 % of TotalCARIBBEAN 8,828,791 43.3% 15,254,551 42.8% 17,117,659 38.7%MEDITERRANEAN 841,051 4.1% 3,477,729 9.8% 5,092,530 11.5%ALASKA 1,715,197 8.4% 3,008,146 8.4% 3,790,816 8.6%BAHAMAS 1,922,386 9.4% 2,761,224 7.7% 2,891,352 6.5%TRANSCANAL 970,191 4.8% 2,277,201 6.4% 2,612,788 5.9%MEXICO WEST 1,131,462 5.6% 1,754,312 4.9% 2,421,126 5.5%EUROPE 357,516 1.8% 1,582,589 4.4% 3,714,437 8.4%BERMUDA 1,141,121 5.6% 1,094,707 3.1% 1,094,982 2.5%SOUTH AMERICA 620,396 3.0% 255,830 0.7% 943,392 2.1%TRANSATLANTIC 339,388 1.7% 658,928 1.8% 725,040 1.6%HAWAII 602,728 3.0% 601,542 1.7% 745,216 1.7%ALL OTHER (15 other locations) 1,906,767 9.4% 2,935,123 14.4% 3,091,374 15.2%TOTAL 20,376,994 100.0% 35,661,882 100.0% 44,240,712 100%

Who’s OnboardObviously different types of cruises attract different types of customers.Nonetheless, certain demographic profiles are most likely to take a cruise. The tablebelow compares the demographic profile of those who have taken a cruise with the entireU.S. population over the age of 24. Generally, the population of past cruisers is older,wealthier and better educated than the entire population.DemographicProfileGender:Age:MaritalStatus:HouseholdComposition:Education:HouseholdIncome:MaleFemale25-under 40 years40-59 years60 years or olderAverageMedianMarriedNot MarriedHave childrenunder 18Adults onlyEver Cruised49%51%27%42%32%51 yrs.51 yrs.76%24%Past 5 YearCruisers51%48%28%42%30%50 yrs.51 yrs.78%22%Populationover Age 2450%49%43%44%13%43 yrs.42 yrs.69%31%37%63%35%65%54%46%Occupants 3 3 3Some College orless42% 36% 54%College Graduate or 58% 64% 46%more$20,000-$29,999$30,000-$39,999$40,000-$59,999$60,000-$99,999$100,000 or moreAverageMedian8%12%32%28%20%$72,600$58,5005%10%31%30%25%$79,100$64,50013%17%31%29%9%$60,400$51,800Examining those who have cruised most recently reveals a few different types ofcustomers, as the figure below illustrates, but most seek the relaxation and pamperingthat a cruise can provide. Indeed, when the recent cruiser population was asked whatcruising offered that was superior to other types of vacations, the top three responseswere “being pamper,” “fine dining” and “hassle free.”

Restless Baby Boomers are newest to cruising. They are at a point in time when they may be tryingdifferent vacation experiences.Enthusiastic Baby Boomers are already convinced about cruising and its many activities. They liveintense, stressful lives and look to vacations generally, and cruises in particular, for the escape andrelaxation they offer.Luxury Seekers can afford, and are willing to spend money for deluxe accommodations and pampering.Consummate Shoppers are looking for the best value in a vacation and in a cruise.Explorers are well-educated, well-traveled individuals with an intellectual interest and curiosity aboutdifferent destinations.Ship Buffs are the most senior segment: they have cruised extensively and expect to continue becausethey find the on-board experience of cruising so pleasurable and comfortable.Supply of Available BerthsThe supply of available berths as of 1998 was shown in the market share figure givenearlier. Further, because the lead-time necessary to design and build a cruise ship isapproximately three years, a reasonably accurate forecast of future supply is available forthe next three years, as seen in the figure below (more detailed information about RoyalCaribbean’s new ships is available later in the case). It is more difficult to estimate theamount of capacity that will be retired in the future. Over the past five years, 48 shipswith a total of 28,900 berths have been retired or moved out of the North Americanmarket. However, many of these retirements occurred because of a 1997 deadline tomeet the heightened safety requirements imposed by the International MaritimeOrganization. From 1994 through 1996, retirements exceeded 7000 berths per year buthave slowed considerably since then.NEW Capacity 1999 1999 2000 2000 2001 2001total totalnew newships berths ships berths ships berths ships berthsCarnival Cruises(includes Holland brand)3 5480 2 6180 2 3900 7 15560Royal Caribbean Cruises(includes Celebrity brand)1 3100 2 5100 3 6100 6 14300All Other Cruise Lines 7 7794 2 2800 4 6296 13 16890Total New Ships/Berths 11 16374 6 14080 9 16296 26 46750

Demand for a Cruise VacationTo date only 11% of the U.S. population has ever taken a cruise. However, a recentcruise industry survey of people over the age of 24 found that 56% are interesting incruising sometime in the future and 31% responded that they will definitely take a cruisein the next five years. Demographic trends also favor the cruise industry. As thedemographic profile showed, 42% of recent cruise passengers are between the ages of 40and 59. As the baby boomers age, this segment of the U.S. population is estimated togrow at more than three times the national population growth rate over the next threeyears, as seen in the figure below.3.50%annual population growth rates by age3.00%2.50%2.00%1.50%1.00%0.50%0.00%-0.50%-1.00%-1.50%-2.00%1999 2000 2001age 24 and under age 25-39 age 40-59 age 60 and overAlong with growth in the US population, it is possible that the amount of vacationtime per individual will increase over time. Numerous studies have shown that the babyboomer generation values recreation more highly than previous generations. This isillustrated in the next figure that plots grow rates in the U.S. gross domestic product(GDP), personal consumption and recreation expenditures. As figure shows, growth inpersonal consumption maps closely to growth in the gross domestic product (GDP). Bycomparison, recreation spending has grown faster than personal consumption in everyyear since 1980, with the gap between the two increasing dramatically after the 1991recession. This increase is widely attributed to the consumption tastes of the babyboomer generation. The figure also shows the 1998 Congressional Budget Office’sforecasts for future GDP growth.

12.010.08.06.04.02.00.01980198119821983percentage growth198419851986198719881989199019911992199319941995199619971998E1999E2000E2001E-2.0-4.0Real GDP Personal Consumption Expenditures Recreation ExpendituresFinally, U.S. residents vacation far less than the citizens of all other developed countries,averaging just 13 days per year. As the figure below illustrates, even the hard-workingJapanese and Koreans vacation almost twice as much as Americans. Italians, living thegood life, vacation more than three times as much. It is certainly possible that Americanswill increase their vacation expenditures even more in the future.45Average Number of Vacation Days4035302520151050Italy France Germany Brazil Austria UK Canada Korea Japan USA

Appendix 1Cruise Industry, Demographic and Macroeconomic DataPanel A: passengers and berths over timeyear 1980 1981 1982 1983 1984 1985 1986 1987 1988annual passengers (thousands) 1431 1453 1471 1755 1859 2152 2624 2898 3175average lenth of trip (days) 6.7 6.9 6.9 6.9 6.8 6.4 6.4 6.4% of passengers on 2-5 day trips 29.6 25.3 21.6 22.3 26.3 35.1 32.8 32.9available berths 41073 47266 47834 52392 56771 60446 66810 72268passenger growth % 1.5% 1.2% 19.3% 5.9% 15.8% 21.9% 10.4% 9.6%berth growth % 15.1% 1.2% 9.5% 8.4% 6.5% 10.5% 8.2%year 1990 1991 1992 1993 1994 1995 1996 1997 1998annual passengers (thousands) 3640 3979 4136 4480 4448 4378 4656 5051 5428average lenth of trip (days) 6.2 6.1 6.2 6.4 6.3 6.5 6.4 6.5 6.6% of passengers on 2-5 day trips 38.3 37.4 35.2 36.7 38 33.7 35.9 33.6 34.7available berths 83533 86631 97539 103988 103296 105171 110292 118399 138373passenger growth % 0.10773 0.093132 0.039457 0.083172 -0.007143 -0.015737 0.063499 0.084837 0.074639berth growth % 0.154265 0.037087 0.125913 0.066117 -0.006655 0.018152 0.048692 0.073505 0.168701Panel B: existing and new capacity1998 existing 1998 existing NEW Capacity 1999 1999 2000 2000 2001 2001total totalnew newships berths ships berths ships berths ships berths ships berths33 39466Carnival Cruises(includes Holland brand)3 5480 2 6180 2 3900 7 1556016 29800Royal Caribbean Cruises(includes Celebrity brand)1 3100 2 5100 3 6100 6 1430096 69107 All Other Cruise Lines 7 7794 2 2800 4 6296 13 16890145 138373 Total New Ships/Berths 11 16374 6 14080 9 16296 26 46750Panel C: destinationsDestination (total bed-days) 1987 % of Total 1995 % of Total 1998 % of TotalCARIBBEAN 8,828,791 43.3% 15,254,551 42.8% 17,117,659 38.7%MEDITERRANEAN 841,051 4.1% 3,477,729 9.8% 5,092,530 11.5%ALASKA 1,715,197 8.4% 3,008,146 8.4% 3,790,816 8.6%BAHAMAS 1,922,386 9.4% 2,761,224 7.7% 2,891,352 6.5%TRANSCANAL 970,191 4.8% 2,277,201 6.4% 2,612,788 5.9%MEXICO WEST 1,131,462 5.6% 1,754,312 4.9% 2,421,126 5.5%EUROPE 357,516 1.8% 1,582,589 4.4% 3,714,437 8.4%BERMUDA 1,141,121 5.6% 1,094,707 3.1% 1,094,982 2.5%SOUTH AMERICA 620,396 3.0% 255,830 0.7% 943,392 2.1%TRANSATLANTIC 339,388 1.7% 658,928 1.8% 725,040 1.6%HAWAII 602,728 3.0% 601,542 1.7% 745,216 1.7%ALL OTHER (15 other locations) 1,906,767 9.4% 2,935,123 14.4% 3,091,374 15.2%TOTAL 20,376,994 100.0% 35,661,882 100.0% 44,240,712 100%PanelD: U.S. demographics

US Demographic Estimates 1-Jul-98 1-Jul-99 1-Jul-00 1-Jul-01 1-Jul-02 1-Jul-03 1-Jul-04 1-Jul-05(all amounts in thousands)Po p ulation, All Ages 270,299 272,820 275,306 277,803 280,306 282,798 285,266 287,716Summary Ind ic a torsMedian Age.......... 35.2 35.5 35.8 36 36.2 36.4 36.5 36.7Mean Age............ 36.2 36.4 36.5 36.7 36.8 36.9 37.1 37.224 a nd und er 95,342 96,197 96,969 97,792 98,484 99,143 99,695 100,11725 to 39 61,400 60,556 59,717 58,862 58,158 57,564 57,137 57,01540 to 59 68,886 70,981 73,108 75,131 77,020 78,485 80,027 81,36760 a nd over 44,670 45,086 45,514 46,016 46,645 47,606 48,406 49,220annual growth in population 0.93% 0.91% 0.91% 0.90% 0.89% 0.87% 0.86%a ge 24 and under 0.90% 0.80% 0.85% 0.71% 0.67% 0.56% 0.42%a ge 25-39 -1.37% -1.39% -1.43% -1.20% -1.02% -0.74% -0.21%a ge 40-59 3.04% 3.00% 2.77% 2.51% 1.90% 1.96% 1.67%a ge 60 a nd over 0.93% 0.95% 1.10% 1.37% 2.06% 1.68% 1.68%Panel E: macroeconomic trends and estimates% growth in Personal% growth in CPI Consumption Recreationreal GDP (inflation) Expenditures Expenditures1980 -0.3 13.5 -0.4 -0.11981 2.3 10.3 1.2 4.01982 -2.1 6.2 1.2 2.41983 4.0 3.2 5.2 8.91984 7.0 4.3 5.2 9.51985 3.6 3.6 4.7 6.41986 3.1 1.9 4 8.01987 3.0 3.6 3.1 7.31988 3.8 4.1 3.9 8.01989 3.4 4.8 2.3 4.41990 1.2 5.4 1.7 3.41991 -0.9 4.2 -0.6 1.11992 2.7 3.0 2.8 5.31993 2.3 3.0 2.8 8.81994 3.5 2.6 3.1 8.01995 2.3 2.8 2.3 9.31996 3.5 3.0 2.5 7.71997 3.9 2.3 3.5 8.61998E 3.0 2.91999E 2.1 2.32000E 1.9 2.52001E 2.0 2.4estimates are from the 1998 Economic and Budget Outlook from theCongressional Budget Officesource: Bureau of Economic Analysis

----------------------------------------------------------------------------------------------------------------------------------------------------------------SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 20-F(MARK ONE)[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OFTHE SECURITIES EXCHANGE ACT OF 1934OR[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998OR[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES EXCHANGE ACT OF 1934COMMISSION FILE NUMBER: 1-11884ROYAL CARIBBEAN CRUISES LTD.(Exact name of Registrant as specified in its charter)REPUBLIC OF LIBERIA(Jurisdiction of incorporation or organization)1050 CARIBBEAN WAY, MIAMI, FLORIDA 33132(Address of principal executive offices)Securities registered or to be registered pursuant to Section 12(b) of the Act:TITLE OF EACH CLASSNAME OF EACH EXCHANGE ON WHICH REGISTERED------------------- ---------------------------------------Common Stock, par value $.01 per shareNew York Stock Exchange$3.625 Series A Convertible Preferred Stock New York Stock Exchangepar value $.01 per share

PART IITEM 1. DESCRIPTION OF BUSINESSGENERALRoyal Caribbean Cruises Ltd., a Liberian corporation, including its subsidiaries (the "Company"), is the world's second largestcruise company with 16 cruise ships and a total of 29,800 berths. The Company offers more than 110 different itineraries that callon more than 175 destinations on six continents.The Company operates two brands, the Royal Caribbean International brand ("Royal Caribbean International") and the CelebrityCruises brand ("Celebrity Cruises"). The Company acquired Celebrity Cruise Lines Inc. ("Celebrity") in July 1997.The Royal Caribbean International BrandRoyal Caribbean International serves the volume cruise vacation market which it categorizes as the contemporary and premiumsegments. The brand operates 11 cruise ships with an aggregate of 21,600 berths, offering more than 60 different cruiseitineraries, that range from three to 21 nights and call on more than 140 destinations on six continents.Royal Caribbean International's strategy is to attract a broad array of vacationing consumers in the contemporary segment of thevolume market by providing a wide variety of itineraries, varying cruise lengths and multiple options for dining andentertainment aboard its vessels. The Company believes that the variety and quality of Royal Caribbean International's productoffering represent excellent value to consumers, especially to couples and families traveling with children. While the brand ispositioned at the upper end of the contemporary segment, the Company believes that Royal Caribbean International's qualityenables it to attract consumers from the premium segment as well, thereby achieving the broadest market coverage of any of themajor brands in the cruise industry.The Celebrity Cruises BrandCelebrity Cruises primarily serves the premium segment of the cruise vacation market. Celebrity Cruises operates five cruiseships with an aggregate of 8,200 berths. Celebrity Cruises offers more than 40 different itineraries, that range from five to 19nights, reaching over 80 destinations in Alaska, Bermuda, the Caribbean, Europe, Mexico, and the Panama Canal.Celebrity Cruises' strategy is to attract consumers who want an enhanced cruise vacation in terms of modern vessels, fine diningand service, large staterooms, a high staff to guest ratio, excellent spas and high technology. These are hallmarks of the premiumcruise vacation market, which is Celebrity Cruises' primary target. One of Celebrity Cruises' principal objectives is to offer apremium cruise experience. As such, it also attracts consumers from the contemporary and luxury cruise categories.Both brands offer a wide array of shipboard activities, services and amenities including swimming pools, sun decks, beautysalons, exercise and massage facilities, gaming facilities, lounges, bars, show-time entertainment, retail shopping and cinemas.Although many of the shipboard activities are included in the base price of the cruise, revenues are also realized from gamingfacilities, the sale of alcoholic and other beverages, retail sales and shore excursions.INDUSTRYSince 1970, cruising has been one of the fastest growing sectors of the vacation market, as the number of North American guestshas grown to an estimated 5.4 million in 1998 from 0.5 million in 1970, a compound annual growth rate of approximately 9%,according to Cruise Lines International Association ("CLIA"). The Company has capitalized on the increasing popularity ofcruises through an extensive fleet expansion program. The Company's revenues have increased at a compound annual growth rateof approximately 18% between 1988 and 1998. The Company's market share of North American guests carried in 1998 isestimated to have been approximately 33.9%.The following table sets forth data regarding industry and Company growth over the past five years based on guests carried for atleast three consecutive nights:GUESTSCARRIED ON NORTHTHEAMERICANCOMPANY'S CRUISE COMPANYYEAR SHIPS(2) GUESTS(1) PERCENTAGE---- ---------- ------------- ----------1994.................................. 1,051,868 4,448,000 23.6%1995.................................. 1,058,126 4,378,000 24.21996.................................. 1,245,696 4,659,000 26.71997.................................. 1,633,457 5,051,000 32.31998.................................. 1,841,152 5,428,000 33.9(1) Source: CLIA (2) 1994 -- 1997 are proforma to include Celebrity Cruises

According to CLIA and other trade publications, the North American market was served by an estimated 130 cruise ships with anaggregate capacity of approximately 102,000 berths at the end of 1993. The number of berths in the industry is estimated to haveincreased to approximately 128,000 berths on 122 ships by the end of 1998. There are a number of cruise ships on order with atotal estimated capacity of 64,000 berths which will be placed in service between 1999 and 2004. Over the last five years,approximately 48 ships with an aggregate capacity of approximately 28,900 berths have either been retired or moved out of theNorth American market. Although the Company cannot predict the rate at which future retirements will occur, the Companybelieves ship retirements will continue due to competitive pressures and age of vessels.Cruise lines compete for consumers' disposable leisure time dollars with other vacation alternatives such as land-based resorthotels and sightseeing destinations, and public demand for such activities is influenced by general economic conditions. TheCompany believes that cruise guests currently represent only a small share of the vacation market and that a significant portion ofcruise guests carried are "first-time cruisers."OPERATING STRATEGIESThe Company's principal operating strategies are the following: (i) build the awareness and market penetration of the brands; (ii)continue to expand its fleet with state-of-the-art cruise ships; (iii) broaden its itineraries worldwide; (iv) maintain its competitiveposition with respect to the quality and innovation of its on-board product; (v) maintain strong relationships with travel agencies,the principal industry distribution system; (vi) further expand international passenger sourcing; (vii) utilize sophisticated yieldmanagement systems (revenue optimization per berth); and (viii) further improve its technological capabilities.Brand AwarenessThe Company's strategy is to continue to broaden the recognition of both the Royal Caribbean International brand and theCelebrity Cruises brand in the cruise vacation marketplace. Each brand has a distinct identity and marketing focus but utilizesshared infrastructure resources.Royal Caribbean International has positioned itself in the contemporary and premium segments of the cruise vacation market andfocuses on providing multiple choices to its guests through a variety of itineraries, accommodations, dining, ship activities andshore excursions. Hallmarks of the brand include friendly service, family programs, entertainment, health and fitness andactivities for various age groups.Celebrity Cruises primarily serves the premium segment of the cruise vacation market. The brand is recognized for its finedining, impeccable service, large staterooms, a high staff to guest ratio and excellent spa facilities. In 1998 and 1999 Berlitz ratedCelebrity Cruises the highest rated premium cruise line in the large vessel category (over 1,000 passenger berths).Fleet ExpansionRoyal Caribbean InternationalFounded in 1968, Royal Caribbean International was the first cruise line to design ships specially for warm water year roundcruising. Royal Caribbean International operated a modern fleet in the 1970's and early 1980's, establishing a reputation for highquality. Between 1988 and 1992, the brand tripled its capacity by embarking on its first major capital expansion program. RoyalCaribbean International committed to its second capital expansion program with orders for six Vision-class vessels, ranging insize from 1,800 to 2,000 berths, for delivery from 1995 through 1998. With the delivery of the Vision-class vessels, RoyalCaribbean International's capacity increased by 61.7% to 23,000 berths at the end of 1998. Each Vision-class ship features aseven-deck atrium with glass elevators, skylights and glass walls; a pool and entertainment complex covered by a moveable glassroof; hundreds of cabins with verandahs; a two-deck main dining room; a state-of-the-art show theater; a glass-encasedindoor/outdoor cafe; and a shopping mall. The ships are designed to be faster than most cruise ships which permits moreflexibility in itinerary planning.Royal Caribbean International currently has three Eagle-class vessels on order for delivery in the fourth quarter of 1999, thirdquarter of 2000 and second quarter of 2002. The Eagle-class vessels will be the largest passenger cruise ships built to date;142,000 tons with 3,100 berths. This new generation of vessels will be designed to provide more diverse vacation options forfamilies and those seeking active sports and entertainment alternatives. Each Eagle-class ship features the cruise industry's firsthorizontal atrium which is the length of two football fields, four decks high and includes two eleven-deck atriums; recreationalactivities such as rock climbing and ice skating; enhanced staterooms; expanded dining options; and a variety of intimate spaces.Royal Caribbean International also has two Vantage-class vessels on order scheduled for delivery in the first quarter of 2001 andsecond quarter of 2002. The Vantage-class is a progression from the brand's Vision-class series and will carry approximately2,100 guests.Beginning in 1999 through 2002, Royal Caribbean International's capacity is expected to increase 52.6% to 35,100 berths.

CELEBRITY CRUISESCelebrity Cruises was founded in 1990 and operated three ships between 1992 and 1995. Between 1995 and 1997, CelebrityCruises undertook its first capital expansion program, adding three Century-class vessels which range in size from 1,750 to 1,850berths. Celebrity Cruises has on order four Millennium-class vessels which will have approximately 2,000 berths and arescheduled for delivery in the second quarter 2000, first quarter 2001, third quarter 2001 and second quarter 2002. TheMillennium-class ships are a progression from the Century-class vessels, which have been widely accepted in the premiumsegment of the marketplace. This new class of vessels will build on the brands' primary strengths, including fine dining, largecabins, extensive spa facilities and impeccable service.Beginning in 2000 through 2002, Celebrity Cruises' capacity is expected to increase 97.7% to 16,200 berths.At year-end 1998, the Company's combined fleet had an average age of approximately five years, which the Company believes isthe youngest of any major cruise company. On a combined basis, beginning in 1999 through 2002, the Company's year-end berthcapacity is expected to increase 64.4% from 31,200 to 51,300 berths.The Company's increased average ship size and number of available berths have enabled it to achieve certain economies of scale.Larger ships allow the Company to transport more guests than smaller ships without a corresponding increase in certain operatingexpenses. This increase in fleet size also provides a larger revenue base to absorb its marketing, selling and administrativeexpenses.Worldwide ItinerariesThe Company's 1999 itineraries include more than 110 different itineraries that call on more than 175 destinations on sixcontinents. New ships allow the Company to expand into new destinations, itineraries and markets. In 1999, Royal CaribbeanInternational will be offering the "Royal Journeys" program which offers 10 global cruise itineraries visiting 41 ports in 19countries on four continents. Celebrity Cruises is repositioning a vessel to the European market. In addition, the Company isincreasing its capacity in the short cruise market in 2000 by establishing a Royal Caribbean International vessel year round inPort Canaveral to provide 3 and 4 day Bahamas cruises.Product InnovationThe Company recognizes the need for new and innovative on-board products and experiences for guests, and develops theseproducts based on guest feedback, crew suggestions and competitive product reviews. Accordingly, the Company continues toinvest in design innovations on new ships and additional product offerings on its existing fleet. New offerings such as expandeddining options, and recreational activities such as rock climbing and ice skating are among the services to be offered in the future.Travel Agency SupportBecause essentially all the bookings for the Company's ships are made by independent travel agencies, the Company iscommitted to supporting the travel agency community. The Company maintains a large sales support organization including 100district sales managers supporting both brands in North America. The Company was the first cruise company to develop anautomated booking system, CruiseMatch 2000(TM). This automated reservations system allows travel agents direct access to theCompany's computer reservation system to improve ease of bookings. More than 30,000 independent travel agencies worldwidecan book cruises for both brands using CruiseMatch 2000(TM). The Company also offers CruiseMatch 2000 Online(R) whichmakes CruiseMatch 2000(TM) accessible to travel agencies through the Royal Caribbean International and Celebrity Cruiseswebsites. In 1998, the Company launched CruiseWriter(sm), an instant collateral system that allows travel agents to customizecollateral materials for their clients. In 1997, the Company also opened a reservation call center in Wichita, Kansas to offergreater flexibility and extended hours of operations.International GuestsInternational guests continue to provide an increasing share of the Company's growth. International guests have grown fromapproximately 7% of total guests in 1991 to approximately 16% of total guests in 1998. One of the Company's strategies is to usefleet deployment and expanded itineraries to increase its passenger sourcing outside North America. During 1998, the Companyhired a senior vice president of international sales and marketing to further develop and expand its international sales capability.The Company carries out its international sales effort through sales offices located in London, Frankfurt, Oslo, Genoa and Paris,and a network of 38 independent international representatives located throughout the world. The Company is also able to acceptbookings in various currencies.Yield ManagementThe Company continues to develop more sophisticated pricing and yield management programs to maximize its occupancy andrevenue by projecting the demand for its cruises in various passenger markets and, based on certain variables, directing itsmarketing efforts toward such markets. In addition to projecting demand, these programs will continue to enable the Company toreact quickly to changes in market conditions.

Technological DevelopmentThe Company's computer system, known as Enterprise 2000, is used by both brands and provides the foundation for: (i) asophisticated reservation system; (ii) sales tools to be used by the Company's combined field sales force; and (iii) productivitytools for travel agents. The Company has developed a corporate shoreside intranet as well as electronic ship to shorecommunication tools to improve its internal productivity. Both Royal Caribbean International and Celebrity Cruises haveextensive websites, providing access to millions of Internet users throughout the world.SALES, MARKETING AND PASSENGER SERVICESThe Company sells its cruise vacations almost exclusively through approximately 30,000 independent travel agencies worldwide.The Company maintains a large sales support organization including 100 district sales managers supporting both brands in NorthAmerica. The Company also utilizes a telemarketing program in the United States and Canada called CruiseConnect to contactsmaller travel agencies to inform them of new products and promotions. The Company believes that maintaining personal contactwith travel agency owners, managers and front-line retail agents is crucial to retaining travel agency loyalty. The Companyaugments this type of contact with an extensive program of seminars designed to familiarize travel agents with the cruise industryand the marketing of cruises.Royal Caribbean International pursues a comprehensive marketing program with an emphasis on consumer advertising using thetag line, "Like no vacation on earth(sm)." Through its advertising, Royal Caribbean International positions itself as a provider ofhigh quality, all-inclusive, cruise vacations offering a variety of destinations and, in the Company's opinion, considerable value.Royal Caribbean International attempts to convey the message that the style and level of service of its shipboard cruiseexperience, together with the destinations visited by its ships, is an attractive alternative to land-based vacations.Celebrity Cruises also pursues a comprehensive marketing program with an emphasis on consumer advertising using the tag line,"Exceeding expectations(sm)". An advertising campaign utilizing national television, magazines and newspapers featurescommercials with the theme, "Simply the Best". The Company believes that Celebrity Cruises represents enhanced value to thepremium segment based on elements such as its dining experience, staff to guest ratio, cabin size, artwork, technology,AquaSpa(sm) packages and its modern fleet of ships, all of which have been built in the 1990's.OPERATIONSCruise Ships and ItinerariesThe Company operates 16 ships under two brands and offers more than 110 different itineraries ranging from three to 21 nightsthat call on more than 175 destinations on six continents. The following table represents summary information concerning theCompany's ships and their areas of operation based on 1999 itineraries (subject to change):YEAR VESSEL PASSENGERENTERED SERVICE CAPACITY(1) PRIMARY AREAS OF OPERATION--------------- ----------- ----------------------------ROYAL CARIBBEAN INTERNATIONAL:Voyager of the Seas(2)............. 1999 3,100 Western CaribbeanVision of the Seas................. 1998 2,000 Panama Canal, Hawaii, AlaskaEnchantment of the Seas............ 1997 1,950 Eastern & Western CaribbeanRhapsody of the Seas............... 1997 2,000 Alaska, Southern Caribbean,Mexico, Panama Canal, HawaiiGrandeur of the Seas............... 1996 1,950 Eastern CaribbeanSplendour of the Seas.............. 1996 1,800 Europe, Caribbean,Canada/New EnglandLegend of the Seas................. 1995 1,800 Europe, Hawaii, PanamaCanal, Mexico, RoyalJourneysMajesty of the Seas................ 1992 2,350 Western & Southern CaribbeanMonarch of the Seas................ 1991 2,350 Southern CaribbeanViking Serenade(3)................. 1982/1991 1,500 Mexican BajaNordic Empress..................... 1990 1,600 Southern Caribbean, BermudaSovereign of the Seas.............. 1988 2,250 BahamasCELEBRITY CRUISES:Mercury............................ 1997 1,850 Western Caribbean, Alaska,Panama CanalGalaxy............................. 1996 1,850 Southern Caribbean, AlaskaCentury............................ 1995 1,750 Eastern & Western Caribbean,EuropeZenith............................. 1992 1,350 Panama Canal, BermudaHorizon............................ 1990 1,350 Southern Caribbean, Bermuda(1) Based on double occupancy per cabin. (2) Voyager of the Seas is expected to enter service in November 1999.(3) Indicates year placed in service and year redeployed after conversion to expand capacity.

At year-end 1998, the combined fleets of Royal Caribbean International and Celebrity Cruises had an average age ofapproximately five years, which the Company believes is the youngest of any major cruise company.New VesselsThe Company has nine ships on order. The planned passenger capacity and expected delivery dates of the ships on order are asfollows:EXPECTEDPASSENGERVESSEL DELIVERY DATES CAPACITY(1)------ ----------------- -----------ROYAL CARIBBEAN INTERNATIONAL:Eagle-classVoyager of the Seas(2)................................. 4th Quarter 1999 3,100Explorer of the Seas................................... 3rd Quarter 2000 3,100Adventure of the Seas.................................. 2nd Quarter 2002 3,100Vantage-classRadiance of the Seas................................... 1st Quarter 2001 2,100Brilliance of the Seas................................. 2nd Quarter 2002 2,100CELEBRITY CRUISES:Millennium-classMillennium............................................. 2nd Quarter 2000 2,000Unnamed................................................ 1st Quarter 2001 2,000Unnamed................................................ 3rd Quarter 2001 2,000Unnamed................................................ 2nd Quarter 2002 2,000(1) Based on double occupancy per cabin. (2) Included in table on prior page -- Cruise Ships and Itineraries.The Eagle-class vessels are being built in Turku, Finland by Kvaerner-Masa Yards which built two of the Royal CaribbeanInternational ships. The Vantage-class vessels are being built in Papenburg, Germany by Meyer Werft, the same shipyard whichbuilt all of the Celebrity Cruises vessels. The Millennium-class vessels are being built by Chantiers de l'Atlantique in St. Nazaire,France, the same shipyard which built seven of the Royal Caribbean International ships. The aggregate contract price of the nineships, which excludes capitalized interest and other ancillary costs, is approximately $3.6 billion.Shipboard Activities and Shipboard RevenuesBoth brands offer modern fleets with a wide array of shipboard activities, services and amenities including swimming pools, sundecks, spa facilities which include massage and exercise facilities, beauty salons, gaming facilities (which operate while the shipsare at sea), lounges, bars, Las Vegas-style entertainment, retail shopping, libraries, cinemas, conference centers and shoreexcursions at each port of call. While many shipboard activities are included in the base price of a cruise, additional revenues arerealized from gaming, the sale of alcoholic and other beverages, the sale of gift shop items, shore excursions, photography andspa services.Private DestinationsRoyal Caribbean International operates two private destinations: (i) CocoCay, an island owned by the Company and known asLittle Stirrup Cay located in the Bahamas; and (ii) Labadee, a secluded peninsula leased by the Company and located on the northcoast of Haiti. The facilities at CocoCay and Labadee include, among others, a variety of watersports activities, refreshment bars,artisan markets and picnic facilities.SeasonalityThe Company's revenues are moderately seasonal, due to variations in rates and occupancy percentages. See Note 14 to theAnnual Consolidated Financial Statements.Guests and CapacityThe following table sets forth the aggregate number of guests carried and the number of guests expressed as a percentage of totalcapacity for the Company's ships:FISCAL YEARS-------------------------------1998 1997 1996--------- --------- -------Number of Guests....................................... 1,841,152 1,465,450 973,602Percentage of Total Capacity.......................... 105.2% 104.2% 101.3%In accordance with cruise industry practice, total capacity is determined based on double occupancy per cabin even though somecabins accommodate three or four guests; accordingly, a percentage in excess of 100% indicates that more than two guestsoccupied some cabins.

Cruise PricingThe Company's cruise prices include a wide variety of activities and amenities, including all meals and entertainment. Prices varydepending on the destination, cruise length, cabin category selected and the time of year the voyage takes place. Additionally, theCompany offers "Air add-ons" for guests that elect to utilize the Company's Air/Sea Program. Air add-ons vary by gateway anddestination and are available from cities in the United States, Canada and Europe. Furthermore, the Company sells tripcancellation insurance which provides guests with insurance coverage for trip cancellation, medical protection and baggageprotection.SUPPLIERSThe Company's largest purchases are for airfare, food and related items, advertising, diesel fuel, hotel supplies and productsrelated to passenger accommodations. Most of the supplies required by the Company are available from numerous sources atcompetitive prices. The Company's largest operating cost is air transportation for its guests. None of the Company's suppliersprovided goods or services representing in excess of 10% of the Company's revenues in 1998.EMPLOYEESAs of December 31, 1998, the Company and its subsidiaries employed approximately 2,300 full-time and 400 part-timeemployees in shoreside operations worldwide. The Company and its subsidiaries also employ approximately 18,300 crew andstaff for its vessels. As of December 31, 1998, approximately 70% of the Company's shipboard employees are covered bycollective bargaining agreements. The Company believes that its relationship with its employees is good.TAXATION OF THE COMPANYThe following discussion of the application to the Company and its subsidiaries of the United States federal income tax laws isbased on the current provisions of the Internal Revenue Code of 1986, as amended, (the "Code"), proposed, temporary and finalTreasury Department regulations, administrative rulings and court decisions. All of the foregoing are subject to change, and anychange thereto could affect the accuracy of this discussion.Application of Section 883 of the CodeThe Company and its wholly owned subsidiary, Celebrity Cruises Inc. ("CCI"), are foreign corporations that are engaged in atrade or business in the United States, and the Company's vessel-owning subsidiaries are foreign corporations that, in many cases,depending upon the itineraries of their vessels, receive income from sources within the United States. Under Section 883 of theCode, certain foreign corporations are not subject to United States income or branch profits tax on United States source incomederived from or incidental to the international operation of a ship or ships, including income from the leasing of such ships.ITEM 2. DESCRIPTION OF PROPERTYFor a description of the Company's cruise ships, see "Item 1. Description of Business -- Operations -- Cruise Ships andItineraries."The Company leases three office buildings on the Port of Miami from Dade County, Florida. Two of the buildings have initialterms of 20 years which began in 1991 and 1995, respectively, and the third building has an initial term of 17 years which beganin 1998. The Company also leases a building in Wichita, Kansas which is used as an additional reservation center with an initialterm of ten years beginning in 1997. The Company leases space for its international sales offices in London, Oslo, Frankfurt,Genoa and Paris.Royal Caribbean International operates two private destinations, (i) CocoCay, an island owned by the Company and known asLittle Stirrup Cay located in the Bahamas and (ii) Labadee, a secluded peninsula leased by the Company and located on the northcoast of Haiti.The Company owns one building in San Juan, Puerto Rico and leases a second building in St. Thomas, Virgin Islands for RoyalCaribbean International's Crown and Anchor Clubs. These facilities, which are exclusively for Royal Caribbean International'sguests, provide a rest stop where guests can check packages, get refreshments or make phone calls.The Company believes that its facilities are adequate for its current needs.ITEM 3. LEGAL PROCEEDINGSIn June 1998, the Company entered into a plea agreement with the U.S. Department of Justice settling previously filed chargescontained in two indictments pending in the U.S. District of Puerto Rico and the Southern District of Florida, respectively. Theindictments, which pertained to events that occurred in 1994 and prior years, contained a total of 11 felony counts related toimproper disposal of oil-contaminated bilge water and attempts to conceal such activities from the U.S. Coast Guard. Under theplea agreement, the Company pled guilty to eight of the 11 counts and paid $9.0 million. The Company was also placed onprobation for up to five years and has implemented a Court supervised Environmental Compliance Plan. The U.S. government is

continuing its investigation of the Company's bilge water and other waste disposal practices through federal grand juryproceedings in Anchorage, Alaska, Los Angeles, California, Miami, Florida and New York, New York. In February 1999, theCompany was indicted by the grand jury in Los Angeles on charges that it presented false oil record books for one of its vesselsto the U.S. Coast Guard three times during 1994 and the Company has pled guilty to these charges. Each of the three counts inthe indictment carries a maximum fine of $500,000, subject to increase under certain circumstances. Although the Company isnot able at this time to estimate the timing or impact of these continuing investigations, the Company may be subject to additionalcharges for violations of U.S. law.The Company is routinely involved in other claims typical to the cruise industry. The majority of these claims are covered byinsurance. Management believes the outcome of such other claims which are not covered by insurance would not have a materialadverse effect upon the Company's financial condition or results of operations.ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONSCertain statements under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations",may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Such forward-lookingstatements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors,which may cause the actual results, performance or achievements to differ materially from the future results, performance orachievements expressed or implied in such forward-looking statements. Such factors include inter alia general economic andbusiness conditions, cruise industry competition, the impact of tax laws and regulations affecting the Company and its principalshareholders, changes in other laws and regulations affecting the Company, delivery schedule of new vessels, emergency shiprepairs, incidents involving cruise vessels at sea, changes in interest rates, Year 2000 compliance and weather.GENERALSummaryRoyal Caribbean Cruises Ltd. (the "Company") reported improved revenues, operating income, net income and earnings pershare for the year ended December 31, 1998 as shown in the table below. The improvements were driven primarily by capacityincreases resulting from the acquisition of Celebrity Cruise Lines Inc. ("Celebrity") in July 1997, and additions to the RoyalCaribbean International brand as well as improved revenue per available lower berth ("Yield"). Net income for 1998 included a$9.0 million charge related to a plea agreement with the U.S. Department of Justice in the second quarter and a reduction inearnings of approximately $9.0 million related to the grounding of Monarch of the Seas in the fourth quarter. Also included in netincome for 1998 is a $31.0 million gain on the sale of Song of America and a $32.0 million write-down of Viking Serenade toreflect its estimated fair market value. Net income for 1997 included an extraordinary loss of $7.6 million resulting from the earlyextinguishment of debt as well as a gain of $4.0 million from the sale of Sun Viking. Accordingly, on a comparable basis, beforethese items, earnings increased to $349.8 million or $1.93 per share in 1998, from $178.7 million or $1.17 per share in 1997.FOR THE YEAR ENDED DECEMBER 31,------------------------------------------1998 1997 1996------------ ------------ ------------(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)Revenues................................................... $2,636,291 $1,939,007 $1,357,325Operating Income........................................... 488,735 303,555 217,033Net Income................................................. 330,770 175,127 150,866Basic Earnings Per Share................................... $1.90 $1.17 $1.19Diluted Earnings Per Share................................. $1.83 $1.15 $1.17Selected Statistical Information1998 1997 1996---------- ---------- ----------Passengers Carried......................................... 1,841,152 1,465,450 973,602Passenger Cruise Days...................................... 11,607,906 8,759,651 6,055,068Occupancy Percentage...................................... 105.2% 104.2% 101.3%Fleet ExpansionThe Company's fleet expansion continued in 1998 with the delivery of the last of the six Vision-class vessels in the RoyalCaribbean International fleet, Vision of the Seas, in April 1998. With the delivery of these six ships and the acquisition ofCelebrity in 1997, the Company's capacity has increased approximately 119.3% from 14,228 berths at December 31, 1994 to31,200 at December 31, 1998.

The Company has nine ships on order. See table given earlier for details on capacity and delivery dates.The Eagle-class vessels will be the largest passenger cruise ships built to date. The Vantage-class vessels are a progression fromRoyal Caribbean International's Vision-class vessels, while the Millennium-class vessels are a progression from CelebrityCruises' Century-class vessels.Between 1998 and 2002, the Company's year-end berth capacity is expected to increase 64.4% from 31,200 to 51,300 berths.In May 1998, the Company sold Song of America for $94.5 million and recognized a gain on the sale of $31.0 million. TheCompany operated the vessel under a charter agreement until March 1999.RESULTS OF OPERATIONS:The following table presents operating data as a percentage of revenues:FOR THE YEAR ENDEDDECEMBER 31,---------------------1998 1997 1996----- ----- -----Revenues.................................................... 100.0% 100.0% 100.0%Expenses:Operating................................................. 60.5 62.9 63.0Marketing, selling and administrative..................... 13.6 14.0 14.3Depreciation and amortization............................. 7.4 7.4 6.7----- ----- -----Operating Income............................................ 18.5 15.7 16.0Other Income (Expense)...................................... (6.0) (6.3) (4.9)----- ----- -----Income Before Extraordinary Item............................ 12.5% 9.4% 11.1%===== ===== =====YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997RevenuesRevenues increased 36.0% to $2.6 billion compared to $1.9 billion in 1997. The increase in revenues was primarily due to a31.2% increase in capacity and a 3.6% increase in Yield. The acquisition of Celebrity (which occurred in July 1997) accountedfor approximately two-thirds of the capacity increase, while additions to the Royal Caribbean International fleet accounted for thebalance of the increase. The increase in Yield was due to an increase in occupancy levels to 105.2% as compared to 104.2% in1997 as well as an increase in cruise ticket per diems, partially offset by a reduction in shipboard revenue per diems. Thereduction in shipboard revenue per diems is due to the inclusion of Celebrity's results for the full year 1998 as compared to sixmonths in 1997. Celebrity derives a higher percentage of its shipboard revenue from concessionaires than does Royal CaribbeanInternational, resulting in a dilutive effect on the per diem. Concessionaires pay a net commission to the Company which isrecorded as revenue, in contrast to in-house operations, where shipboard revenues and the related cost of sales are recorded on agross basis.ExpensesOperating expenses increased 30.7% in 1998 to $1.6 billion as compared to $1.2 billion in 1997. The increase in operatingexpenses was primarily due to the increase in capacity. Included in operating expenses is a $9.0 million charge related to the pleaagreement with the U.S. Department of Justice. As a percentage of revenues, operating expenses decreased 2.4% in 1998 due toimproved ticket pricing as well as the inclusion of Celebrity results for the full year of 1998 versus six months of 1997.Celebrity's operating expenses as a percentage of revenues were lower than Royal Caribbean International's due to lowershipboard cost of sales as a result of the higher use of concessionaires onboard Celebrity vessels as discussed above.Marketing, selling and administrative expenses increased 31.9% in 1998 to $359.2 million from $272.4 million in 1997. Theincrease was primarily due to the acquisition of Celebrity as well as higher advertising and staffing costs. As a percentage ofrevenues, marketing, selling and administrative expenses decreased to 13.6% in 1998 as a result of economies of scale.Depreciation and amortization increased to $194.6 million in 1998 from $143.8 million in 1997. The increase was primarily dueto the acquisition of Celebrity as well as additions to the Royal Caribbean International fleet.

Other Income (Expense)Interest expense, net of capitalized interest, increased to $167.9 million in 1998 as compared to $128.5 million in 1997. Theincrease is due to the increase in the average debt level as a result of the Company's fleet expansion program as well as theacquisition of Celebrity in July 1997.Included in Other income (expense) in 1998 is a $31.0 million gain from the sale of Song of America as well as a $32.0 millioncharge related to the write-down to fair market value of Viking Serenade. Based on the Company's strategic objective to maintaina modernized fleet, the unique circumstances of this vessel and indications of the current value of Viking Serenade, the Companyrecorded a write-down of the carrying value to its current estimated fair market value. The Company continues to operate anddepreciate the vessel which is classified as part of Property and Equipment on the balance sheet.On December 15, 1998, Monarch of the Seas experienced significant damage to the ship's hull and equipment, resulting in theship being out of service until mid-March 1999. The incident resulted in a net reduction in earnings of approximately $9.0million, or $0.05 per share in the fourth quarter of 1998. This reduction is comprised of lost revenue, net of related variableexpenses, of $5.2 million, and costs associated with repairs to the ship, passenger transportation and lodging, commissions andvarious other costs, net of estimated insurance recoveries, of $3.8 million. The costs of $3.8 million were included in Otherincome (expense) for the quarter and year ended December 31, 1998.Included in Other income (expense) in 1997 is a $4.0 million gain from the sale of Sun Viking.Extraordinary ItemIncluded in 1997 is an extraordinary charge of $7.6 million or $0.05 per share related to the early extinguishment of debt.YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996RevenuesRevenues increased 42.9% in 1997 to $1.9 billion compared to $1.4 billion in 1996 as a result of a 40.7% increase in capacity aswell as an increase in Yield. The acquisition of Celebrity contributed 22.1% of the capacity increase while additions to the RoyalCaribbean International fleet accounted for 18.6% of the increase. Yield for the year increased 1.5% over 1996 as a result of anincrease in occupancy. Occupancy levels increased to 104.2% in 1997 as compared to 101.3% in 1996.ExpensesOperating expenses increased 42.7% to $1.2 billion in 1997 as compared to $854.5 million in 1996. This increase in operatingexpenses was primarily due to the 40.7% increase in capacity and higher variable costs associated with the increased occupancy.Marketing, selling and administrative expenses increased 39.9% in 1997 to $272.4 million versus $194.6 million in 1996. Theincrease was primarily due to the acquisition of Celebrity, an increase in staffing and additional advertising costs. These expensesdecreased as a percentage of revenues in 1997 as a result of the economies of scale achieved with the increase in capacity.Depreciation and amortization increased to $143.8 million in 1997 from $91.2 million in 1996. The increase was primarily due tothe acquisition of Celebrity as well as additions to the Royal Caribbean International fleet.Other Income (Expense)Interest expense, net of capitalized interest, increased to $128.5 million in 1997 from $76.5 million in 1996. The increase was aresult of an increase in the average debt level associated with the Company's fleet expansion program and from the acquisition ofCelebrity in July 1997.Other income (expense) in 1997 includes a gain of $4.0 million from the sale of Sun Viking as compared to 1996 which includesa gain of $10.3 million from the sale of Song of Norway.Extraordinary ItemIn May 1997, the Company redeemed the remaining $104.5 million of 11 3/8% Senior Subordinated Notes and incurred anextraordinary charge of $7.6 million, or $0.05 per share on the early extinguishment of debt.LIQUIDITY AND CAPITAL RESOURCESSources and Uses of CashThe Company generated substantial cash flows resulting in net cash provided by operating activities of $526.9 million in 1998 ascompared to $434.1 million in 1997 and $299.5 million in 1996. The increase was primarily due to higher net income as well astiming differences in cash payments relating to operating assets and liabilities.

In March 1998, the Company issued $150.0 million of 6.75% Senior Notes due 2008 and $150.0 million of 7.25% SeniorDebentures due 2018. The net proceeds to the Company were approximately $296.1 million.In March 1998, the Company issued 6,100,690 shares of common stock. The net proceeds to the Company were approximately$165.5 million. (See Note 7 -- Shareholders' Equity.)During the year ended December 31, 1998, the Company's capital expenditures were approximately $557.0 million as comparedto $1.1 billion during 1997 and $722.4 million during 1996. The largest portion of capital expenditures related to the delivery ofVision of the Seas in 1998, delivery of Rhapsody of the Seas, Enchantment of the Seas and Mercury in 1997, delivery ofSplendour of the Seas and Grandeur of the Seas in 1996, as well as progress payments for ships under construction during 1998,1997 and 1996. Also included in capital expenditures are shoreside capital expenditures and costs for vessel refurbishing tomaintain consistent fleet standards.The Company received proceeds of $94.5 and $100.0 million from the sale of vessels during 1998 and 1997, respectively.Capitalized interest decreased to $15.0 million in 1998, from $15.8 million in 1997 and $15.9 million in 1996. The decreaseduring 1998 was due to a reduction in the level of construction-in-progress expenditures associated with the Company's fleetexpansion program.During 1998, the Company paid quarterly cash dividends on its common stock totaling $55.2 million as well as quarterly cashdividends on its preferred stock, totaling $12.5 million. During 1997, the Company paid quarterly cash dividends totaling $40.8and $9.2 million on its common stock and preferred stock, respectively.The Company made principal payments totaling approximately $335.1 and $245.4 million under various term loans and capitalleases during 1998 and 1997, respectively.Future CommitmentsThe Company currently has nine ships on order for an additional capacity of 21,500 berths. The aggregate contract price of thenine ships, which excludes capitalized interest and other ancillary costs, is approximately $3.6 billion, of which the Companydeposited $144.6 million during 1998 and $74.3 million during 1997. Additional deposits are due prior to the dates of delivery of$237.4 million in 1999, $88.1 million in 2000 and $25.0 million in 2001. The Company anticipates that overall capitalexpenditures will be approximately $997, $1,196, and $1,368 million for 1999, 2000 and 2001, respectively.The Company has $2.5 billion of long-term debt of which $127.9 million is due during the twelve month period endingDecember 31, 1999. (See Note 6 -- Long-Term Debt.)In addition, the Company continuously considers potential acquisitions, strategic alliances and adjustments to its fleetcomposition, including the acquisition or disposition of vessels. If any such acquisitions, strategic alliances and adjustments to itsfleet composition were to occur, they would be financed through the issuance of additional shares of equity securities, by theincurrence of additional indebtedness or from cash flows from operations.Funding SourcesAs of December 31, 1998, the Company's liquidity was $1.2 billion consisting of $172.9 million in cash and cash equivalents and$1.0 billion available under its $1.0 billion unsecured revolving credit facility (the "$1 Billion Revolving Credit Facility"). Thecapital expenditures and scheduled debt payments will be funded through a combination of cash flows provided by operations,drawdowns under the $1 Billion Revolving Credit Facility, and sales of securities in private or public securities markets. Inaddition, the agreements related to the ships scheduled for delivery subsequent to 1999 require the shipyards to make availableexport financing for up to 80% of the contract price of the vessels.The Company's cash management practice is to utilize excess cash to reduce outstanding balances on the $1 Billion RevolvingCredit Facility, and to the extent the cash balances exceed the amounts drawn under the $1 Billion Revolving Credit Facility, theCompany invests in short-term securities.OtherThe Company enters into interest rate swap agreements to manage interest costs as part of its liability risk management program.The differential in interest rates to be paid or received under these agreements is recognized in income as part of interest expenseover the life of the contracts. The objective of the program is to modify the Company's exposure to interest rate movements. TheCompany continuously evaluates its debt portfolio, including its interest rate swap agreements, and makes periodic adjustmentsto the mix of fixed rate and floating rate debt based on its view of interest rate movements. (See Note 12 -- FinancialInstruments.)

Impact of Year 2000The "Year 2000 issue" is the result of computer programs that were written using two digits rather than four to define theapplicable year. If the Company's computer programs with date-sensitive functions are not Year 2000 compliant, they mayrecognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculationscausing disruptions to operations.RisksBased on its current assessment efforts, the Company does not believe that Year 2000 issues will have a material adverse effecton the results of its operations, liquidity or financial condition. However, this assessment is dependent on the ability of third-partysuppliers and others whose system failures potentially could have a significant impact on the Company's operations to be Year2000 compliant. For instance, the operations of the Company could be impacted by disruptions in airlines, port authorities, travelagents or others in the transportation or sales distribution channels whose systems are not Year 2000 compliant. Although theCompany cannot control the conduct of these third parties, the Year 2000 Project is expected to reduce the Company's level ofuncertainty and the adverse effect that any such failures may have.CostsThe total cost associated with required modifications to become Year 2000 compliant are not expected to be material to theCompany's financial position.The Company estimates that it will incur approximately $6.0 million in expense on efforts directly related to fixing the Year 2000issue, as well as an additional $5.0 million of capital expenditures related to the accelerated replacement of non-compliantsystems. The Company has incurred approximately $2.0 million in expense since January 1, 1998, and spent an additional $2.0million for capital expenditures related to the accelerated replacement of non-compliant systems. Estimated costs do not includecosts that may be incurred by the Company as a result of the failure of any third parties to become Year 2000 compliant or coststo implement any contingency plans.ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKGeneralThe Company is exposed to market risks attributable to changes in interest rates, currency exchange rates and commodity prices.The Company enters into various derivative transactions to manage a portion of these exposures to market risk pursuant to theCompany's hedging practices and policies. The impacts of these hedging instruments are offset by corresponding changes in theunderlying exposures being hedged. The Company achieves this by closely matching the amount, term and conditions of thederivative instrument with the underlying risk being hedged. The Company does not hold or issue derivative financialinstruments for trading or other speculative purposes. Derivative positions are monitored using techniques including marketvaluations and sensitivity analysis. See Notes 2 and 12 to the Consolidated Financial Statements for a discussion of theCompany's accounting policies for financial instruments.Interest Rate RiskThe Company's exposure to market risk for changes in interest rates relates to its long-term debt obligations. At December 31,1998, the fair value of the Company's long-term fixed rate debt was estimated at approximately $2,565.0 million using quotedmarket prices where available, or discounted cash flow analyses. Market risk associated with the Company's long-term debt is thepotential increase in fair value resulting from a decrease in interest rates. The Company uses interest rate swaps to modify itsexposure to interest rate movements and manage its interest expense. The Company's interest rate swaps are primarily floatingrate instruments that are tied to LIBOR. The fair value of the Company's interest rate swaps was approximately $48.6 million atDecember 31, 1998. A 10% decrease in assumed interest rates would increase the fair value of the Company's long-term debt byapproximately $73.8 million. This increase would be partially offset by an increase in the fair value of the Company's interest rateswaps of $18.6 million.

ROYAL CARIBBEAN CRUISES LTD.CONSOLIDATED STATEMENTS OF OPERATIONS(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)YEAR ENDED DECEMBER 31,------------------------------------1998 1997 1996---------- ---------- ----------Revenues................................................... $2,636,291 $1,939,007 $1,357,325---------- ---------- ----------ExpensesOperating................................................ 1,593,728 1,219,268 854,478Marketing, selling and administrative.................... 359,214 272,368 194,629Depreciation and amortization............................ 194,614 143,816 91,185---------- ---------- ----------2,147,556 1,635,452 1,140,292---------- ---------- ----------Operating Income........................................... 488,735 303,555 217,033---------- ---------- ----------Other Income (Expense)Interest income.......................................... 15,912 4,666 2,278Interest expense, net of capitalized interest............ (167,869) (128,531) (76,540)Other income (expense)................................... (6,008) 2,995 8,095---------- ---------- ----------(157,965) (120,870) (66,167)---------- ---------- ----------Income Before Extraordinary Item........................... 330,770 182,685 150,866Extraordinary Item......................................... -- (7,558) ------------ ---------- ----------Net Income................................................. $ 330,770 $ 175,127 $ 150,866========== ========== ==========Basic Earnings Per ShareIncome before extraordinary item......................... $ 1.90 $ 1.22 $ 1.19Extraordinary item....................................... -- (0.05) ------------ ---------- ----------Net income............................................... $ 1.90 $ 1.17 $ 1.19========== ========== ==========Diluted Earnings Per ShareIncome before extraordinary item......................... $ 1.83 $ 1.20 $ 1.17Extraordinary item....................................... -- (0.05) ------------ ---------- ----------Net, income.............................................. $ 1.83 $ 1.15 $ 1.17========== ========== ==========(Please note that the preferred dividend is $12,500K in 1998 and $9,200K in 1997. Subtracting these amounts from the NetIncome shown above results in Net Income Available to Common Shareholders.)

ROYAL CARIBBEAN CRUISES LTD.CONSOLIDATED BALANCE SHEETS(IN THOUSANDS EXCEPT SHARE AMOUNTS)1998 1997---------- ----------ASSETSCurrent AssetsCash and cash equivalents................................. $ 172,921 $ 110,793Trade and other receivables, net.......................... 36,532 22,628Inventories............................................... 31,834 37,274Prepaid expenses.......................................... 45,044 40,450---------- ----------Total current assets.............................. 286,331 211,145Property and Equipment -- at cost less accumulateddepreciation and amortization............................. 5,073,008 4,785,291Goodwill -- less accumulated amortization of $107,365 and$96,952, respectively..................................... 309,801 320,214Other Assets................................................ 16,936 23,098---------- ----------$5,686,076 $5,339,748========== ==========LIABILITIES AND SHAREHOLDERS' EQUITYCurrent LiabilitiesCurrent portion of long-term debt......................... $ 127,919 $ 141,013Accounts payable.......................................... 115,833 108,474Accrued liabilities....................................... 243,477 210,454Customer deposits......................................... 402,926 429,403---------- ----------Total current liabilities......................... 890,155 889,344Long-Term Debt.............................................. 2,341,163 2,431,683Commitments and Contingencies (Note 13)Shareholders' EquityPreferred stock ($.01 par value; 20,000,000 sharesauthorized; cumulative convertible preferred sharesissued and outstanding, 3,450,000 shares stated atliquidation value)..................................... 172,500 172,500Common stock ($.01 par value; 500,000,000 sharesauthorized 168,945,222 and 162,128,974 sharesissued)................................................ 1,690 1,621Paid-in capital........................................... 1,361,796 1,188,304Retained earnings......................................... 923,691 660,655Treasury stock (354,492 and 314,148 common shares atcost).................................................. (4,919) (4,359)---------- ----------Total shareholders' equity........................ 2,454,758 2,018,721---------- ----------$5,686,076 $5,339,748========== ==========The accompanying notes are an integral part of these financial statements.

ROYAL CARIBBEAN CRUISES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS(IN THOUSANDS) 1998 1997 1996-------- ----------- --------OPERATING ACTIVITIES:Net income.................................................. $330,770 $ 175,127 $150,866Adjustments:Depreciation and amortization............................. 194,614 143,816 91,185Gain on sale of assets.................................... (31,031) (4,000) (10,306)Write-down of vessel to fair value........................ 32,035 -- --Extraordinary item........................................ -- 2,387 --Changes in operating assets and liabilities:(Increase) decrease in trade and other receivables, net... (13,904) 145 (3,364)Decrease (increase) in inventories........................ 5,440 (1,885) (5,835)(Increase) in prepaid expenses............................ (3,600) (6,206) (7,065)Increase (decrease) in accounts payable................... 7,359 2,010 (2,437)Increase in accrued liabilities........................... 27,722 31,299 22,451(Decrease) increase in customer deposits.................. (26,477) 89,896 61,408Other, net................................................ 3,930 1,532 2,611-------- ----------- --------Net cash provided by operating activities......... 526,858 434,121 299,514-------- ----------- --------INVESTING ACTIVITIES:Purchase of property and equipment.......................... (556,953) (1,106,214) (722,389)Proceeds from sale of assets................................ 94,500 99,966 40,000Acquisition of Celebrity Cruise Lines Inc., net of cash,cash equivalents and short-term investments acquired...... -- (152,423) --Other, net.................................................. 247 (11,802) (6,039)-------- ----------- --------Net cash used in investing activities............. (462,206) (1,170,473) (688,428)-------- ----------- --------FINANCING ACTIVITIES:Proceeds from issuance of long-term debt.................... 296,141 695,189 452,668Repayment of long-term debt................................. (395,144) (367,353) (22,025)Dividends................................................... (67,734) (49,984) (34,384)Proceeds from issuance of common stock...................... 165,532 364,631 --Proceeds from issuance of preferred stock................... -- 167,030 --Other, net.................................................. (1,319) (2,787) 1,818-------- ----------- --------Net cash (used in) provided by financingactivities...................................... (2,524) 806,726 398,077-------- ----------- --------Net increase in cash and cash equivalents................... 62,128 70,374 9,163Cash and cash equivalents, beginning of year................ 110,793 40,419 31,256-------- ----------- --------Cash and cash equivalents, end of year...................... $172,921 $ 110,793 $ 40,419======== =========== ========SUPPLEMENTAL DISCLOSUREInterest paid, net of amount capitalized.................... $170,278 $ 127,457 $ 65,110======== =========== ========Capital stock issued for acquisition........................ $ -- $ 270,000 $ --======== =========== ========

ROYAL CARIBBEAN CRUISES LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 1. GENERALDescription of BusinessRoyal Caribbean Cruises Ltd., a Liberian corporation, and its subsidiaries (the "Company"), is a global cruise company. In July1997, the Company acquired 100% of the outstanding stock of Celebrity Cruise Lines Inc. ("Celebrity") (See Note 4 --Acquisition). The Company operates two cruise brands, Royal Caribbean International, which operates operates 12 cruise ships(one of which has been sold and will operate under a charter agreement until March 1999), and Celebrity Cruises, which operatesfive cruise ships. The Company's ships call on destinations in Alaska, the Bahamas, Bermuda, the Caribbean, Canada, Europe,Hawaii, Mexico, New England, the Panama Canal and Scandinavia.Basis for Preparation of Consolidated Financial StatementsThe consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and arepresented in U.S. dollars. Management estimates are required for the preparation of financial statements in accordance withgenerally accepted accounting principles. Actual results could differ from these estimates. All significant intercompany accountsand transactions are eliminated in consolidation.NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESCruise Revenues and ExpensesDeposits received on sales of passenger cruises are recorded as customer deposits and are recognized, together with revenuesfrom shipboard activities and all associated direct costs of a voyage, upon completion of voyages with durations of 10 days orless and on a pro rata basis for voyages in excess of 10 days. Certain revenues and expenses for pro rata voyages are estimated.Cash and Cash EquivalentsCash and cash equivalents include cash and marketable securities with original maturities of less than 90 days.InventoriesInventories consist of provisions, supplies, fuel and gift shop merchandise carried at the lower of cost (weighted-average) ormarket.Property and EquipmentProperty and equipment are stated at cost. Significant vessel refurbishing costs are capitalized as additions to the vessel, whilecosts of repairs and maintenance are charged to expense as incurred. The Company capitalizes interest as part of the cost ofconstruction. The Company reviews long-lived assets, identifiable intangibles and goodwill and reserves for impairmentwhenever events or changes in circumstances indicate, based on estimated future cash flows, the carrying amount of the assetswill not be fully recoverable.Depreciation of property and equipment, which includes amortization of vessels under capital lease, is computed using thestraight-line method over useful lives of primarily 30 years for vessels and three to 10 years for other property and equipment.(See Note 5 -- Property and Equipment.)GoodwillGoodwill represents the excess of cost over the fair value of net assets acquired and is being amortized over 40 years using thestraight-line method.Advertising CostsAdvertising costs are expensed as incurred except those costs which result in tangible assets, such as brochures, are treated asprepaid supplies and charged to operations as consumed. Advertising expense consists of media advertising as well as brochure,production and direct mail costs. Media advertising was $76.7, $62.5 and $46.6 million, and brochure, production and direct mailcosts were $63.2, $33.7 and $29.2 million for the years 1998, 1997 and 1996, respectively.DrydockingDrydocking costs are accrued evenly over the period to the next scheduled drydocking and are included in accrued liabilities.Segment ReportingThe Company adopted Statement of Financial Accounting Standards No. 131 -- Disclosures About Segments of an Enterpriseand Related Information for the year ended December 31, 1998. Although the Company operates two brands, Royal CaribbeanInternational and Celebrity Cruises, the brands have been aggregated as a single operating segment based on the similarity oftheir economic characteristics as well as product and services provided.

Information about geographic areas is shown in the table below. Revenues are attributed to geographic areas based on the sourceof the customer.1998 1997 1996---- ---- ----Revenues:United States............................................... 84% 85% 85%All Other Countries......................................... 16% 15% 15%NOTE 3. STOCK SPLITOn June 23, 1998, the Company authorized a two-for-one split of its common stock effected in the form of a stock dividend. Theadditional shares were distributed on July 31, 1998 to shareholders of record on July 10, 1998. All share and per shareinformation has been retroactively restated to reflect this stock split.NOTE 4. ACQUISITIONIn July 1997, the Company acquired all of the outstanding stock of Celebrity, a provider of cruises to the North American market.The purchase price was $515.0 million, payable in cash of $245.0 million and 14,896,552 shares of the Company's commonstock. This acquisition has been accounted for under the purchase method, and the results of the operations of Celebrity havebeen included in the consolidated financial statements since July 1, 1997. The total cost of the acquisition was allocated to thetangible assets acquired and liabilities assumed based on their respective fair values.The following unaudited pro forma information presents a summary of consolidated results of operations of the Company,including Celebrity, as if the acquisition had occurred January 1, 1996 (in thousands, except per share amounts).1997 1996---------- ----------Revenue..................................................... $2,196,571 $1,769,216Income before extraordinary item............................ $ 174,406 $ 136,498Net income.................................................. $ 166,848 $ 136,498Earnings per shareIncome before extraordinary itemBasic.................................................. $ 1.10 $ 0.96Diluted................................................ $ 1.10 $ 0.95Net incomeBasic.................................................. $ 1.05 $ 0.96Diluted................................................ $ 1.05 $ 0.95The unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such asadditional depreciation expense as a result of a step-up in the basis of fixed assets and increased interest expense on acquisitiondebt. They do not purport to be indicative of the results which would actually have been achieved if this acquisition had beeneffected on the date indicated or of those results which may be obtained in the future.NOTE 5. PROPERTY AND EQUIPMENTProperty and equipment consists of the following (in thousands):1998 1997---------- ----------Land........................................................ $ 5,320 $ 5,320Vessels..................................................... 4,457,070 4,201,443Vessels under capital lease................................. 763,350 760,941Vessels under construction.................................. 285,243 160,771Other....................................................... 170,290 139,281---------- ----------5,681,273 5,267,756Less -- accumulated depreciation and amortization........... (608,265) (482,465)---------- ----------$5,073,008 $4,785,291========== ==========Vessels under construction includes progress payments for the construction of new vessels as well as planning, design, interest,commitment fees and other associated costs. The Company capitalized interest costs of $15.0, $15.8 and $15.9 million for the

years 1998, 1997 and 1996, respectively. Accumulated amortization related to vessels under capital lease was $67.9 and $45.8million at December 31, 1998 and 1997, respectively.In May 1998, the Company sold Song of America for $94.5 million and recognized a gain on the sale of $31.0 million which isincluded in Other income (expense). In the second quarter of 1998 the Company incurred a $32.0 million charge related to thewrite-down to fair market value of Viking Serenade. Based on the Company's strategic objective to maintain a modernized fleet,the unique circumstances of this vessel and indications of the current value of Viking Serenade, the Company recorded a writedownof the carrying value to its current estimated fair market value which is included in Other income (expense). The Companycontinues to operate and depreciate the vessel which is classified as part of Property and Equipment on the balance sheet.In October 1997, the Company sold Sun Viking for $30.0 million and recognized a gain on the sale of $4.0 million. In September1997, the Company sold Meridian. The sale price was $62.1 million and there was no gain or loss recognized in the transaction.In October 1996, the Company sold Song of Norway for $40.0 million and recognized a gain on the sale of $10.3 million. TheCompany has recorded the gains in Other income (expense).NOTE 6. LONG-TERM DEBTLong-term debt consists of the following (in thousands):1998 1997---------- ----------$1 billion revolving credit facility, LIBOR plus 0.30%interest rate on balances outstanding, 0.15% facility fee,due 2003.................................................. $ -- $ 60,000Senior Notes and Senior Debentures bearing interest at ratesranging from 6.75% to 8.25%, due 2002 through 2008, 2018and 2027.................................................. 1,390,006 1,090,443Unsecured fixed rate loan bearing interest at 8.0%, due2006...................................................... 185,277 211,075Fixed rate loans bearing interest at rates ranging from 6.7%to 8.0%, due through 2005, secured by certain Celebrityvessels................................................... 403,560 595,147Variable rate loans bearing interest at 6.5% through Nov.2001, LIBOR plus 0.45% through 2004, due through 2004,secured by certain Celebrity vessels...................... 30,978 142,670Capital lease obligations, implicit interest rates rangingfrom 7.0% to 7.2%, due through 2011....................... 459,261 473,361---------- ----------2,469,082 2,572,696Less -- current portion..................................... (127,919) (141,013)---------- ----------Long-term portion........................................... $2,341,163 $2,431,683========== ==========Under the Company's $1.0 billion unsecured revolving credit facility (the "$1 Billion Revolving Credit Facility"), the contractualinterest rate on balances outstanding varies with the Company's debt rating. In addition, the $1 Billion Revolving Credit Facilitycontains a competitive bid provision which may allow the Company to borrow funds at less than the contractual interest rate.In March 1998, the Company issued $150.0 million of 6.75% Senior Notes due 2008 and $150.0 million of 7.25% SeniorDebentures due 2018. Net proceeds to the Company were approximately $296.1 million.In May 1997, the Company redeemed the remaining $104.5 million of 11 3/8% Senior Subordinated Notes and incurred anextraordinary charge of approximately $7.6 million, or $0.05 per share on the early extinguishment of debt.The Senior Notes and Senior Debentures are unsecured and are not redeemable prior to maturity.The Company entered into a $264.0 million capital lease to finance Splendour of the Seas and a $260.0 million capital lease tofinance Legend of the Seas in 1996 and 1995, respectively. The capital leases each have semi-annual payments of $12.0 millionover 15 years with final payments of $99.0 and $97.5 million, respectively.

The Company's debt agreements contain covenants that require the Company, among other things, to maintain minimum liquidityamounts, net worth and fixed charge coverage ratios and limit debt to capital ratios. The Company is in compliance with allcovenants as of December 31, 1998. Following is a schedule of principal repayments on long-term debt (in thousands):YEAR----1999........................................................ $ 127,9192000........................................................ 128,0862001........................................................ 109,9822002........................................................ 259,8532003........................................................ 110,948Thereafter.................................................. 1,732,294----------$2,469,082==========NOTE 9. RETIREMENT PLANSThe Company maintains a defined contribution pension plan covering all of its full-time shoreside employees who havecompleted the minimum period of continuous service. Annual contributions to the plan are based on fixed percentages ofparticipants' salaries and years of service, not to exceed certain maximums, as defined in the plan. Pension cost was $6.9, $4.9and $4.3 million for the years 1998, 1997 and 1996, respectively.NOTE 10. OPERATING LEASESThe Company is obligated under noncancelable operating leases for various facilities, primarily office and warehouse space. Asof December 31, 1998, future minimum lease payments under noncancelable operating leases were as follows (in thousands):YEAR----1999........................................................ $ 5,1342000........................................................ 4,4442001........................................................ 4,2052002........................................................ 4,1102003........................................................ 4,023Thereafter.................................................. 26,017-------$47,933=======Total rent expense for all operating leases amounted to $6.9, $5.7 and $4.9 million for the years 1998, 1997 and 1996,respectively.NOTE 11. INCOME TAXESThe Company and the majority of its subsidiaries are not subject to U.S. corporate income tax on income generated from theinternational operation of ships pursuant to Section 883 of the Internal Revenue Code, provided that they meet certain testsrelated to country of incorporation and composition of shareholders. The Company believes that it and a majority of itssubsidiaries meet these tests. Income tax expense related to the Company's remaining subsidiaries is not significant.NOTE 13. COMMITMENTS AND CONTINGENCIESThe Company has nine ships on order. Three are Eagle-class vessels designated for the Royal Caribbean International fleet, thefirst of which, Voyager of the Seas is scheduled for delivery in the fourth quarter of 1999, followed by two sister vesselsscheduled for delivery in the third quarter of 2000 and second quarter of 2002. The Company also has two Vantage-class vesseldesignated for the Royal Caribbean International fleet scheduled for delivery in the first quarter of 2001 and second quarter of2002 and four Millennium-class vessels designated for the Celebrity Cruises fleet, scheduled for delivery in the second quarter of2000, first quarter of 2001, third quarter of 2001 and second quarter of 2002. The aggregate contract price of the nine ships,which excludes capitalized interest and other ancillary costs, is approximately $3.6 billion of which the Company deposited$144.6 million during 1998 and $74.3 million during 1997. Additional deposits are due prior to the dates of delivery of $237.4million in 1999, $88.1 million in 2000 and $25.0 million in 2001.

NOTE 14. QUARTERLY DATA (UNAUDITED)FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER------------------- ------------------- ------------------- -------------------1998 1997 1998 1997 1998 1997 1998 1997-------- -------- -------- -------- -------- -------- -------- --------(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)Revenues.............................. $659,777 $394,590 $656,456 $403,467 $744,910 $612,542 $575,148 $528,408Operating Income...................... 119,461 60,637 121,533 67,397 183,592 116,911 64,149 58,610Income Before Extraordinary Item...... 77,537 38,481 79,770 45,918 150,038 75,931 23,425 22,355Extraordinary Item.................... -- -- -- (7,558) -- -- -- ---------- -------- -------- -------- -------- -------- -------- --------Net Income............................ $ 77,537 $ 38,481 $ 79,770 $ 38,360 $150,038 $ 75,931 $ 23,425 $ 22,355======== ======== ======== ======== ======== ======== ======== ========Basic Earnings Per Share(1):Income before extraordinary item.... $ 0.45 $ 0.29 $ 0.45 $ 0.33 $ 0.87 $ 0.50 $ 0.12 $ 0.12Extraordinary item.................. -- -- -- (0.05) -- -- -- ---------- -------- -------- -------- -------- -------- -------- --------Net income.......................... $ 0.45 $ 0.29 $ 0.45 $ 0.28 $ 0.87 $ 0.50 $ 0.12 $ 0.12======== ======== ======== ======== ======== ======== ======== ========Diluted Earnings Per Share(1):Income before extraordinary item.... $ 0.44 $ 0.29 $ 0.44 $ 0.32 $ 0.82 $ 0.48 $ 0.12 $ 0.12Extraordinary item.................. -- -- -- (0.05) -- -- -- ---------- -------- -------- -------- -------- -------- -------- --------Net income.......................... $ 0.44 $ 0.29 $ 0.44 $ 0.27 $ 0.82 $ 0.48 $ 0.12 $ 0.12======== ======== ======== ======== ======== ======== ======== ========Dividends Declared Per Share.......... $ 0.08 $ 0.07 $ 0.08 $ 0.07 $ 0.09 $ 0.08 $ 0.09 $ 0.08======== ======== ======== ======== ======== ======== ======== ========

FORM 10-KSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549(Mark One)[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the fiscal year ended November 30, 1998OR[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the transition period from ______________ to ________________Commission file number 1-9610CARNIVAL CORPORATION(Exact name of registrant as specified in its charter)Republic of Panama 59-1562976(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)3655 N.W. 87th Avenue, Miami, Florida 33178-2428(Address of principal executive offices) (Zip Code)Registrant's telephone number, including area code (305) 599-2600Securities registered pursuant to Section 12(b) of the Act:Name of exchange onTitle of each classwhich registeredCommon StockNew York Stock($.01 par value) Exchange, Inc.

PART IItem 1. BusinessA. GeneralCarnival Corporation was incorporated under the laws of the Republic of Panama in November 1974. Carnival Corporation,including its wholly and majority owned subsidiaries (referred to collectively as the "Company"), is the world's largest multiplenightcruise company based on the number of passengers carried, revenues generated and available capacity. The Company offersa broad range of leading cruise brands serving the contemporary cruise market through Carnival Cruise Lines ("Carnival"), thepremium cruise market through Holland America Line ("Holland America") and the luxury cruise market through Cunard Line("Cunard"), Seabourn Cruise Line ("Seabourn") and Windstar Cruises ("Windstar") (collectively the "Majority Owned CruiseOperations"). The Company also owns equity interests in Costa Crociere S.p.A. ("Costa"), an Italian cruise company, andAirtours plc ("Airtours"), an integrated leisure travel group of companies which also operates cruise ships (collectively the"Affiliated Cruise Operations"). Costa and Airtours' Sun Cruises target the contemporary cruise market.A summary of the cruise operations of the Company and its affiliates is as follows:PercentageOwned byPrimaryCruise Carnival Number Passenger GeographicBrand Corporation of Ships Capacity(1) MarketMajority Owned CruiseOperations:Carnival 100% 13 24,404 North AmericaHolland America 100% 8 10,302 North AmericaWindstar 100% 4 756 North AmericaCunard (2) 68% 5 3,380 WorldwideSeabourn (2) 68% 3 624 North America33 39,466Affiliated CruiseOperations:Costa 50%(3) 7 7,644 EuropeAirtours' Sun Cruises 26% 3 2,924 Europe10 10,56843 50,034(1) In accordance with cruise industry practice, all passenger capacities indicated within this document are calculated based ontwo passengers per cabin even though some cabins can accommodate three or four passengers.(2) In May 1998, the Company and a group of investors acquired the assets of Cunard, a cruise company operating five luxuryships, for $500 million, as adjusted. Simultaneous with the acquisition, Seabourn Cruise Line Limited, a luxury cruise line inwhich the Company owned a 50% interest, was combined with Cunard. The Company now owns 68% of the combined entity,which is named Cunard Line Limited. See Note 13 to the Financial Statements as included in Exhibit 13 to this Form 10-K.(3) The 50% equity interest of Costa not owned by the Company is owned by Airtours. Including the Company's interest inAirtours, it beneficially owns 63% of Costa.Historically, the Company's cruise brands have been marketed primarily in North America. The Company began to globalize itscruise business by expanding its markets into Europe through the acquisition of its interest in Airtours in April 1996, Costa inJune 1997 and Cunard in May 1998. Airtours, which is headquartered in Manchester, England, is the largest air inclusive touroperator in the world, selling packaged tours in the Austrian, British, Belgian, Dutch, French, German, Irish, Polish,Scandinavian, Swiss and North American markets. Additionally, it operates three cruise ships (a fourth ship is expected to enterservice in April 1999) under the Sun Cruises name. Costa, which is headquartered in Genoa, Italy, has sales offices in Argentina,Brazil, England, Florida, France, Italy, Spain and Switzerland and sells the majority of its cruises in Southern Europe, primarilyin Italy, France and Spain. Cunard Line Limited, which is headquartered in Miami, Florida, has Cunard and Seabourn salesoffices in Miami, New York City, England, Germany and Australia, and sells a substantial number of its cruises in Europe,primarily in the United Kingdom and Germany. The cruise markets in Europe are much smaller than the North American market.Industry-wide European cruise passengers carried in 1998 are estimated to be approximately 1.3 million compared toapproximately 5.4 million from North America.

The Company has signed agreements with two shipyards providing for the construction of additional cruise ships. A summary ofnew ship agreements for the Company's Majority Owned Cruise Operations is as follows:EXPECTEDSERVICEPASSENGERVESSEL DATE(1) CAPACITYCarnival:Carnival Triumph 7/99 2,758Carnival Victory 8/00 2,758Newbuild 4/01 2,100Carnival Conquest 12/02 2,758Carnival Glory 8/03 2,758Total Carnival 13,132(2)Holland America:Volendam 8/99 1,440Zaandam 3/00 1,440Newbuild 11/00 1,380Total Holland America 4,260Total 17,392(1) The expected service date is the date the vessel is expected to begin revenue generating activities.(2) The Company also has options for the construction of two additional vessels each with a passenger capacity of 2,100. Noassurance can be given that the options to construct the vessels will be exercised.In addition to its cruise operations, the Company operates a tour business, through Holland America Line-Westours Inc.("Holland America Westours"), which markets sightseeing tours both separately and as a part of Holland America cruise/tourpackages. Holland America Westours operates 14 hotels in Alaska and the Canadian Yukon, two luxury dayboats offering toursto the glaciers of Alaska and the Yukon River, over 280 motor coaches used for sightseeing and charters in the states ofWashington and Alaska and in the Canadian Rockies and 13 private domed rail cars which are run on the Alaska Railroadbetween Anchorage and Fairbanks.MANAGEMENT'S DISCUSSION AND ANALYSISRESULTS OF OPERATIONSThe Company earns its cruise revenues primarily from (i) the sale of passenger tickets, which includes accommodations, mealsand most shipboard activities, (ii) the sale of air transportation to and from the cruise ship and (iii) the sale of goods and serviceson board its cruise ships, such as casino gaming, bar sales, gift shop sales and other related services. The Company also derivesrevenues from the tour and related operations of Holland America Westours.For selected segment and export sales information related to the Company's revenues, gross operating profit, operating incomeand other financial information, see Note 10 in the accompanying financial statements. Operations data expressed as a percentageof total revenues and selected statistical information for the periods indicated is as follows:YEARS ENDED NOVEMBER 30,1998 1997 1996REVENUES 100% 100% 100%COSTS AND EXPENSES:Operating expenses 54 54 56Selling and administrative 12 12 12Depreciation and amortization 7 7 7OPERATING INCOME BEFORE INCOMEFROM AFFILIATED OPERATIONS 27 27 25INCOME FROM AFFILIATED OPERATIONS, NET 3 2 2OPERATING INCOME 30 29 27NET INCOME 28% 27% 26%SELECTED STATISTICAL INFORMATION(in thousands):Passengers carried 2,045 1,945 1,764Passenger cruise days (1) 13,009 11,908 10,583Occupancy percentage 106.3% 108.3% 107.6%(1) A passenger cruise day is one passenger sailing for a period of one day. For example, one passenger sailing on a one weekcruise is seven passenger cruise days.

GENERALThe growth in the Company's revenues during the last three fiscal years has primarily been a function of the expansion of its fleetcapacity and, additionally in 1998, its ability to obtain significantly higher net yields than in previous years.Fixed costs, including depreciation, fuel, insurance and crew costs, represent more than one-third of the Company's operatingexpenses and do not change significantly in relation to changes in passenger loads and aggregate passenger ticket revenue.The Company's cruise and tour operations experience varying degrees of seasonality. The Company's revenue from the sale ofpassenger tickets for its cruise operations is moderately seasonal. Historically, demand for cruises has been greater during thesummer months. The Company's tour revenues are extremely seasonal with a majority of tour revenues generated during the latespring and summer months in conjunction with the Alaska cruise season.The year over year percentage increase in average passenger capacity for the Company's cruise brands, excluding the impact ofthe acquisition and consolidation of Cunard and Seabourn, is expected to be 13.7% during fiscal 1999 as compared to fiscal 1998.This increase is primarily a result of the introduction into service of Carnival's Elation in March 1998 and Paradise in lateNovember 1998, the expected introduction into service of the Carnival Triumph in July 1999 and Holland America's Volendamin August 1999 and the introduction into service of Windstar's Wind Surf in May 1998. Including the impact of Cunard andSeabourn, average passenger capacity is expected to increase 18.5% in fiscal 1999 as compared to fiscal 1998. The acquisitionand consolidation of Cunard and Seabourn is not expected to materially affect the Company's consolidated net income in 1999.The year over year percentage increase in average passenger capacity, excluding the impact of Cunard and Seabourn, resultingfrom the delivery of vessels currently under contract for construction for the fiscal years 2000 and 2001 is expected toapproximate 12.9% and 11.9%, respectively. Including the impact of Cunard and Seabourn, the year over year increase inaverage passenger capacity for fiscal 2000 and 2001 is expected to approximate 11.7% and 10.9%, respectively.In June 1997, the Company and Airtours, a publicly traded leisure travel company in which the Company holds a 26% interest,each acquired a 50% interest in Il Ponte, the parent company of Costa, an Italian cruise company. The Company records itsinterest in Airtours and Il Ponte using the equity method of accounting and records its portion of Airtours' and Il Ponte'sconsolidated operating results on a two-month lag basis. Demand for Airtours' and Costa's products is seasonal due to the natureof the European leisure travel industry and European cruise season. Typically, Airtours' and Costa's quarters ending June 30 andSeptember 30 experience higher demand, with demand in the quarter ending September 30 being the highest.Fiscal 1998 Compared To Fiscal 1997RevenuesThe increase in total revenues of $561.8 million, or 23.0%, was due primarily to an increase in cruise revenues of $540.3 million,or 23.9%. Approximately $281.9 million of the cruise revenue increase is due to the acquisition and consolidation of Cunard andSeabourn and $258.4 million is due to increased cruise revenues from Carnival, Holland America and Windstar. The increasefrom Carnival, Holland America and Windstar resulted from an increase of approximately 7.0% in total revenue per passengercruise day and a 4.8% increase in passenger capacity, offset slightly by a .6% decrease in occupancy rates. Total revenue perpassenger cruise day increased primarily due to strong demand for the Company's cruise brands and the introduction of HollandAmerica's new Rotterdam VI in November 1997, which has obtained higher pricing. Passenger capacity increased due to theaddition of new vessels discussed previously partially offset by the Ecstasy being out of service for two months during 1998 (seeNonoperating Income (Expense)). Tour revenues increased $31.8 million, or 13.1% to $274.5 million in 1998 from $242.6million in 1997 due primarily to an increase in the number of tours sold.Cost and ExpensesOperating expenses increased $296.7 million, or 22.4%. Cruise operating costs increased by $274.2 million, or 23.1% in 1998.Approximately $177.5 million of the cruise operating costs increase is due to the acquisition and consolidation of Cunard andSeabourn. Excluding Cunard and Seabourn, cruise operating costs as a percentage of cruise revenues were 50.9% and 52.5% in1998 and 1997, respectively. Cruise operating costs, excluding Cunard and Seabourn, increased primarily as a result of increasesin passenger capacity and airfare costs, partially offset by lower fuel costs. Airfare costs increased due to a higher rate per airpassenger as well as a higher percentage of passengers electing the Company's air program. Tour operating expenses increased$32.8 million, or 17.2% primarily due to the increase in tour volume and higher expenses incurred primarily as a result ofincreased tour content.Selling and administrative expenses increased $72.9 million, or 24.6%, of which $46.8 million, or 15.8%, was due to theacquisition and consolidation of Cunard and Seabourn. Excluding Cunard and Seabourn, selling and administrative expenses as apercentage of revenues were 11.8% and 12.1% in 1998 and 1997, respectively. Selling and administrative expenses, excludingCunard and Seabourn, increased primarily as a result of increases in advertising and payroll and related costs.

Depreciation and amortization increased by $33.4 million, or 20.0%, to $200.7 million in 1998 from $167.3 million in 1997primarily due to the additional depreciation associated with the increase in the size of the fleet and the acquisition andconsolidation of Cunard and Seabourn.Affiliated OperationsDuring 1998, the Company recorded $76.7 million of income from affiliated operations as compared with $53.1 million ofincome in 1997. The Company's portion of Airtours' income increased $3.7 million to $39.4 million in 1998. The Companyrecorded income of $39.9 million and $15.5 million during 1998 and 1997, respectively, related to its interest in Il Ponte. TheCompany did not record earnings from its investment in Il Ponte in the first nine months of 1997 since Il Ponte was acquired inJune 1997 and its consolidated operating results are recorded on a two- month lag basis. The affiliated operations for 1998includes Seabourn through May 28, 1998 after which its results are included in the Company's consolidated results.Nonoperating Income (Expense)Gross interest expense (excluding capitalized interest) increased $20.2 million in 1998 primarily as a result of higher averagedebt balances, arising from the acquisition and consolidation of Cunard and Seabourn as well as investments in new vesselprojects. Capitalized interest increased $18.3 million due primarily to higher levels of investments in ship construction projectsduring fiscal 1998 as compared with fiscal 1997.Included in other income in 1998 were gains of $8.4 and $14.8 million resulting from the closing of the sale of CHC's hotelmanagement division and Airtours' issuances of its common stock, respectively. In the event that Airtours issues additionalcommon stock in the future, the Company may recognize gains or losses related to these future issuances. Additionally, otherexpense includes $8.7 million of previously deferred start-up costs, which were expensed in 1998 and represent the cumulativeeffect from the Company changing its policy in connection with its early adoption of SOP 98-5 (see Notes 4 and 14 in theaccompanying financial statements).In July 1998, a fire occurred on the mooring deck on Carnival Cruise Lines' Ecstasy. There were no serious injuries to passengersor crew, however, there was damage to the ship's aft section. The time necessary to complete repairs to the Ecstasy resulted in theship being out of service for approximately two months during 1998. The Ecstasy fire resulted in a reduction in earnings ofapproximately $19.3 million in 1998. This reduction was comprised of lost revenue, net of related variable expenses, of $12.0million, and costs associated with repairs to the ship, passenger handling and various other costs, net of estimated insurancerecoveries, of $7.3 million. The costs of $7.3 million were included in other expenses.Minority interest was $11.1 million which represents the minority shareholders' interest in Cunard Line Limited's net incomesince its acquisition and consolidation by the Company on May 28, 1998.

CARNIVAL CORPORATIONCONSOLIDATED BALANCE SHEETS (in thousands, except par value)ASSETS NOVEMBER 30,1998 1997CURRENT ASSETSCash and cash equivalents $ 137,273 $ 139,989Short-term investments 5,956 9,738Accounts receivable, net 60,837 57,090Consumable inventories, at average cost 75,449 54,970Prepaid expenses and other 90,764 74,238Total current assets 370,279 336,025PROPERTY AND EQUIPMENT, Net 5,768,114 4,327,413OTHER ASSETSInvestments in and advances to affiliates 546,693 479,329Goodwill, less accumulated amortization of$72,255 and $62,256 437,464 212,607Other assets 56,773 71,401$7,179,323 $5,426,775LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIESCurrent portion of long-term debt $ 67,626 $ 59,620Accounts payable 168,546 106,783Accrued liabilities 206,968 154,253Customer deposits 638,383 420,908Dividends payable 53,590 44,578Total current liabilities 1,135,113 786,142LONG-TERM DEBT 1,563,014 1,015,294DEFERRED INCOME AND OTHER LONG-TERM LIABILITIES 63,036 20,241COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)MINORITY INTEREST 132,684SHAREHOLDERS' EQUITYCommon Stock; $.01 par value; 960,000 sharesauthorized; 595,448 and 594,408 shares issued andoutstanding 5,955 5,944Paid-in-capital 880,488 863,125Retained earnings 3,379,628 2,731,213Other 19,405 4,816Total shareholders' equity 4,285,476 3,605,098$7,179,323 $5,426,775The accompanying notes are an integral part of these consolidated financial statements.

CARNIVAL CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)YEARS ENDED NOVEMBER 30,1998 1997 1996REVENUES $3,009,306 $2,447,468 $2,212,572COSTS AND EXPENSESOperating expenses 1,619,377 1,322,669 1,241,269Selling and administrative 369,469 296,533 274,855Depreciation and amortization 200,668 167,287 144,9872,189,514 1,786,489 1,661,111OPERATING INCOME BEFORE INCOME FROMAFFILIATED OPERATIONS 819,792 660,979 551,461INCOME FROM AFFILIATED OPERATIONS, NET 76,732 53,091 45,967OPERATING INCOME 896,524 714,070 597,428NONOPERATING INCOME (EXPENSE)Interest income 10,257 8,675 18,597Interest expense, net ofcapitalized interest (57,772) (55,898) (64,092)Other income, net 1,793 5,436 23,414Income tax expense (3,815) (6,233) (9,045)Minority interest (11,102)(60,639) (48,020) (31,126)NET INCOME $ 835,885 $ 666,050 $ 566,302EARNINGS PER SHARE:Basic $1.40 $1.12 $.98Diluted $1.40 $1.12 $.96The accompanying notes are an integral part of these consolidated financial statements.

CARNIVAL CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)YEARS ENDED NOVEMBER 30,1998 1997 1996OPERATING ACTIVITIESNet income $ 835,885 $666,050 $566,302Adjustments to reconcile net income tonet cash provided from operating activities:Depreciation and amortization 200,668 167,287 144,987Income from affiliates in excess ofdividends received (63,059) (46,569) (43,224)Minority interest 11,102Other (8,428) 2,540 19,639Changes in operating assets and liabilities,excluding businesses acquired and consolidated:Decrease (increase) in:Receivables 137 (21,229) (4,432)Consumable inventories (3,913) (1,689) (4,461)Prepaid expenses and other (15,369) 903 (4,919)Increase (decrease) in:Accounts payable 18,758 22,035 (5,489)Accrued liabilities 42,401 20,042 13,028Customer deposits 73,658 68,210 60,092Net cash provided from operatingactivities 1,091,840 877,580 741,523INVESTING ACTIVITIESAdditions to property and equipment, net (1,150,413) (497,657) (901,905)Proceeds from sale of assets 47,028 17,041 94,291Proceeds from litigation settlementsapplied to cost of ships 43,050Acquisition of consolidated subsidiaries, net (242,868)Purchase of equity interests in affiliates (38,378) (163,112)Other (additions to) reductions ininvestments in and advances toaffiliates, net (380) 39,540 (23,903)Decrease in short-term investments, net 4,052 2,748 37,710Other, net 21,528 21,805 94,644Net cash used for investing activities (1,321,053) (454,901) (819,225)FINANCING ACTIVITIESProceeds from long-term debt 1,404,395 155,366 971,361Principal payments of long-term debt (1,006,586) (424,391) (735,246)Dividends paid (178,458) (130,456) (103,877)Proceeds from issuance of Common Stock 11,399 5,162 3,728Other (4,253)Net cash provided from (used for)financing activities 226,497 (394,319) 135,966Net (decrease) increase in cash andcash equivalents (2,716) 28,360 58,264Cash and cash equivalents at beginningof year 139,989 111,629 53,365Cash and cash equivalents at end of year $ 137,273 $139,989 $111,629The accompanying notes are an integral part of these consolidated financial statements.

CARNIVAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1 - GENERALDescription of BusinessCarnival Corporation, a Panamanian corporation, and its wholly and majority owned subsidiaries (referred to collectively as the"Company") operate five cruise lines under the brand names Carnival Cruise Lines ("Carnival"), Cunard Line ("Cunard"),Holland America Line ("Holland America"), Seabourn Cruise Line ("Seabourn") and Windstar Cruises ("Windstar") and a tourbusiness, Holland America Westours. Carnival operates thirteen cruise ships cruising primarily in the Caribbean, MexicanRiviera and Alaska. Holland America operates eight cruise ships cruising primarily in Alaska, the Caribbean and Europe andWindstar operates four luxury, sail-powered vessels which call on more exotic locations inaccessible to larger ships, primarily inthe Caribbean, Europe and Central America. Cunard and Seabourn operate five and three luxury cruise vessels, respectively, toworldwide destinations (see Note 13). Holland America Line- Westours Inc. markets sightseeing tours both separately and as apart of Holland America cruise/tour packages. Holland America Westours operates 14 hotels in Alaska and the Canadian Yukon,two luxury dayboats offering tours to the glaciers of Alaska and the Yukon River, over 280 motor coaches used for sightseeingand charters in the states of Washington and Alaska and in the Canadian Rockies and 13 private domed rail cars which are run onthe Alaskan Railroad between Anchorage and Fairbanks.The Company has a 50% direct equity interest in Il Ponte S.p.A. ("Il Ponte"), the parent company of Costa Crociere, S.p.A.("Costa"), an Italian cruise company. Additionally, the Company has a 26% interest in Airtours plc ("Airtours"), a large publiclytraded air-inclusive integrated leisure travel company headquartered in England, and a 23% interest in a casino development andmanagement company, CRC Holdings, Inc. ("CRC"). Costa operates seven cruise ships in Europe, the Caribbean and SouthAmerica and its cruises are marketed primarily to Europeans. Airtours provided holidays for approximately eight million peoplein 1998 primarily from the United Kingdom, Scandinavia and North America and owns or operates over 800 retail travel shops,36 aircraft, three cruise ships (an additional ship is scheduled to be delivered in 1999), 26 holiday hotels and develops andmarkets vacation ownership resorts. Airtours also owns the other 50% of Il Ponte not owned by the Company. CRC's casinoactivities are located in the United States and Canada.NOTE 3 - PROPERTY AND EQUIPMENTProperty and equipment consists of the following:November 30,1998 1997(in thousands)Vessels $5,754,218 $4,536,382Vessels under construction 526,529 182,9296,280,747 4,719,311Land, buildings and improvements 217,597 194,013Transportation and other equipment 322,069 268,520Total property and equipment 6,820,413 5,181,844Less accumulated depreciation and amortization (1,052,299) (854,431)$5,768,114 $4,327,413Interest costs associated with the construction of property and equipment, consisting primarily of vessels, are capitalized duringthe construction period and amounted to $35.1 million in 1998, $16.8 million in 1997 and $25.8 million in 1996.NOTE 10 - SEGMENT INFORMATIONThe Company's cruise segment currently operates twenty-nine passenger cruise ships and four luxury sailing vessels. Cruiserevenues are comprised of sales of passenger tickets, including, in some cases, air transportation to and from the cruise ship, andrevenues from on-board activities and other related services. The tour business represents the operations of Holland AmericaWestours. The corporate segment is primarily comprised of cash and cash equivalents, goodwill, and investments, including theCompany's investments in and advances to affiliates and the related earnings from these affiliates. Intersegment revenuesprimarily represent charges for the cruise portion of a tour when a cruise is sold as a part of a tour package. Export sales representrevenues identified with the Company's domestic operations, which were generated from outside the U.S. Segment and exportsales information for each of the three years in the period ended November 30, 1998 is as follows:

1998 1997 1996(in thousands)REVENUESCruise $2,797,856 $2,257,567 $2,003,458Tour 274,491 242,646 263,356Intersegment revenues (63,041) (52,745) (54,242)$3,009,306 $2,447,468 $2,212,572GROSS OPERATING PROFITCruise $1,338,833 $1,072,758 $ 913,880Tour 51,096 52,041 57,423$1,389,929 $1,124,799 $ 971,303DEPRECIATION AND AMORTIZATIONCruise $ 189,345 $ 157,454 $ 135,694Tour 9,491 8,862 8,317Corporate 1,832 971 976$ 200,668 $ 167,287 $ 144,987OPERATING INCOMECruise $ 822,242 $ 656,009 $ 535,814Tour 9,248 13,262 21,252Corporate 65,034 44,799 40,362$ 896,524 $ 714,070 $ 597,428IDENTIFIABLE ASSETSCruise $6,149,625 $4,744,140 $4,514,675Tour 174,140 163,941 150,851Corporate 855,558 518,694 436,362$7,179,323 $5,426,775 $5,101,888CAPITAL EXPENDITURESCruise $1,113,191 $ 414,963 $ 841,871Tour 28,480 42,507 14,964Corporate 8,742 40,187 1,810$1,150,413 $ 497,657 $ 858,645EXPORT SALES $ 342,017 $ 213,405 $ 198,046NOTE 13 - ACQUISITIONOn May 28, 1998, the Company and a group of investors acquired the operating assets of Cunard, a cruise company operatingfive luxury cruise ships, for $500 million, adjusted for a working capital deficiency and debt assumed. The Company isaccounting for the acquisition using the purchase accounting method. Simultaneous with the acquisition, Seabourn Cruise LineLimited ("Seabourn"), a luxury cruise line in which the Company owned a 50% interest, was combined with Cunard. TheCompany owns approximately 68% of the combined entity, which is named Cunard Line Limited. Commencing on May 28,1998, the financial results of Cunard Line Limited have been included in the Company's consolidated financial statements. Priorto May 28, 1998, the Company's 50% interest in Seabourn was accounted for using the equity method (see Notes 2 and 4).Had the above transactions occurred on December 1, 1996, the Company's unaudited consolidated revenues for fiscal 1998 and1997 would have been approximately $3.23 billion and $2.92 billion, respectively. The impact on the Company's fiscal 1998 and1997 unaudited net income and earnings per share would have been immaterial.

SELECTED FINANCIAL DATAThe selected financial data presented below for the fiscal years 1994 through 1998 and as of the end of each such fiscal year arederived from the financial statements of the Company and should be read in conjunction with such financial statements and therelated notes.YEARS ENDED NOVEMBER 30,1998 1997 1996 1995 1994(in thousands, except per share data)INCOME STATEMENT DATA:Revenues $3,009,306 $2,447,468 $2,212,572 $1,998,150 $1,806,016Operating incomebefore income fromaffiliated operations $ 819,792 $ 660,979 $ 551,461 $ 490,038 $ 443,674Operating income $ 896,524 $ 714,070 $ 597,428 $ 490,038 $ 443,674Net income $ 835,885 $ 666,050 $ 566,302 $ 451,091 $ 381,765Earnings per share (1):Basic $1.40 $1.12 $.98 $.79 $.68Diluted $1.40 $1.12 $.96 $.79 $.67Dividends declaredper share (1) $.315 $.240 $.190 $.158 $.142Passenger cruise days 13,009 11,908 10,583 9,201 8,102Occupancy percentage (2) 106.3% 108.3% 107.6% 105.0% 104.0%----------------------------------(1) All per share amounts have been adjusted to reflect two-for-one stock splits effective November 30, 1994 and June 12, 1998.(2) In accordance with cruise industry practice, occupancy percentage is calculated based upon two passengers per cabin eventhough some cabins can accommodate three or four passengers. The percentages in excess of 100% indicate that more than twopassengers occupied some cabins.SELECTED QUARTERLY FINANCIAL DATA (unaudited)Quarterly financial results for fiscal 1998 are as follows:QUARTERS ENDEDFEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30,(in thousands, except per share data)Revenues $557,838 $661,358 $1,061,539 $728,571Gross profit $250,243 $299,002 $ 521,196 $319,488Operating income beforeincome from affiliatedoperations $128,401 $167,794 $ 365,007 $158,590Operating income $117,720 $165,441 $ 378,849 $234,514Net income $109,914 $160,596 $ 344,752 $220,623Earnings per share (1):Basic $.18 $.27 $.58 $.37Diluted $.18 $.27 $.58 $.37Dividends declared per share (1) $.075 $.075 $.075 $.09Quarterly financial results for fiscal 1997 are as follows:QUARTERS ENDEDFEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30,(in thousands, except per share data)Revenues $521,082 $596,614 $805,421 $524,351Gross profit $224,144 $258,930 $417,301 $224,424Operating income beforeincome from affiliatedoperations $103,944 $140,253 $308,590 $108,192Operating income $ 94,962 $137,541 $318,961 $162,606Net income $ 85,360 $127,447 $297,893 $155,350Earnings per share (1):Basic $.14 $.21 $.50 $.26Diluted $.14 $.21 $.50 $.26Dividends declared per share (1) $.055 $.055 $.055 $.075

Company NameCommon Shares OutstandingROYAL CARIBBEAN CRUISES LTD168,591 (in 000s at most recent fiscal year end)Estimated Price/Share=$98.02Actual Actual Actual Actual ActualFiscal Year End (MM/DD/YYYY) 12/31/1994 12/31/1995 12/31/1996 12/31/1997 12/31/1998Income StatementSales (Net) 1,171,423 1,183,952 1,357,325 1,939,007 2,636,291Cost of Goods Sold (728,760) (742,467) (854,478) (1,219,268) (1,593,728)Gross Profit 442,663 441,485 502,847 719,739 1,042,563R&D Expense 0 0 0 0 0SG&A Expense (179,051) (177,481) (194,629) (272,368) (359,214)EBITDA 263,612 264,004 308,218 447,371 683,349Depreciation & Amortization (77,892) (80,071) (91,185) (143,816) (194,614)EBIT 185,720 183,933 217,033 303,555 488,735Interest Expense (43,349) (54,844) (76,540) (128,531) (167,869)Non-Operating Income (Loss) (46) 19,869 10,373 7,661 9,904EBT 142,325 148,958 150,866 182,685 330,770Income Taxes 0 0 0 0 0Minority Interest in Earnings 0 0 0 0 0Other Income (Loss) 0 0 0 0 0Net Income Before Ext. Items 142,325 148,958 150,866 182,685 330,770Ext. Items & Disc. Ops. (5,700) 0 0 (7,558) 0Preferred Dividends 0 0 0 (9,200) (12,500)Net Income (available to common) 136,625 148,958 150,866 165,927 318,270Balance SheetOperating Cash and Market. Sec. 23,920 31,256 40,419 110,793 172,921Receivables 9,424 12,171 15,535 22,628 36,532Inventories 13,555 16,830 22,665 37,274 31,834Other Current Assets 71,233 27,563 33,745 40,450 45,044Total Current Assets 118,132 87,820 112,364 211,145 286,331PP&E (Net) 1,384,814 1,758,446 2,378,934 4,785,291 5,073,008Investments 0 0 0 0 0Intangibles 351,456 341,041 330,628 320,214 309,801Other Assets 10,602 15,936 20,373 23,098 16,936Total Assets 1,865,004 2,203,243 2,842,299 5,339,748 5,686,076Current Debt 0 6,234 13,061 141,013 127,919Accounts Payable 63,181 71,528 69,091 108,474 115,833Income Taxes Payable 0 0 0 0 0Other Current Liabilities 209,094 230,935 321,307 639,857 646,403Total Current Liabilities 272,275 308,697 403,459 889,344 890,155Long-Term Debt 747,107 929,458 1,353,906 2,431,683 2,341,163Other Liabilities 0 0 0 0 0Deferred Taxes 0 0 0 0 0Minority Interest 0 0 0 0 0Total Liabilities 1,019,382 1,238,155 1,757,365 3,321,027 3,231,318Preferred Stock 0 0 0 172,500 172,500Paid in Common Capital (Net) 545,061 546,058 549,422 1,185,566 1,358,567Retained Earnings 300,561 419,030 535,512 660,655 923,691Total Common Equity 845,622 965,088 1,084,934 1,846,221 2,282,258Total Liabilities and Equity 1,865,004 2,203,243 2,842,299 5,339,748 5,686,076Statement of Retained EarningsBeg. Retained Earnings 300,561 419,030 535,512 660,655+Net Income 148,958 150,866 165,927 318,270-Common Dividends (30,489) (34,384) (49,984) (67,734)+/-Clean Surplus Plug (Ignore) 0 0 9,200 12,500=End. Retained Earnings 300,561 419,030 535,512 660,655 923,691

Company NameROYAL CARIBBEAN CRUISES LTDActual Actual Actual Actual ActualFiscal Year End Date 12/31/1994 12/31/1995 12/31/1996 12/31/1997 12/31/1998Annual Growth RatesSales 1.1% 14.6% 42.9% 36.0%Assets 18.1% 29.0% 87.9% 6.5%Common Equity 14.1% 12.4% 70.2% 23.6%Earnings 9.0% 1.3% 16.1% 88.9%Free Cash Flow to Investors #N/A #N/A #N/ASustainable Growth Rate 11.4% 8.5% 12.7%ProfitabilityReturn on Equity 0.165 0.147 0.119 0.160Return on Equity (b4 non-recurring) 0.143 0.137 0.119 0.155Return on Net Operating Assets 0.117 0.104 0.086 0.105Basic Dupont ModelNet Profit Margin 0.117 0.126 0.111 0.090 0.125x Total Asset Turnover 0.582 0.538 0.474 0.478x Total Leverage 2.247 2.461 2.791 2.671= Return on Equity 0.165 0.147 0.119 0.160Advanced Dupont ModelNet Operating Margin 0.154 0.172 0.168 0.157 0.189x Net Operating Asset Turnover 0.678 0.624 0.551 0.554= Return on Net Operating Assets 0.117 0.104 0.086 0.105Net Borrowing Cost (NBC) 0.065 0.066 0.063 0.062Spread (RNOA - NBC) 0.051 0.038 0.024 0.042Financial Leverage (LEV) 0.929 1.123 1.403 1.305ROE = RNOA + LEV*Spread 0.165 0.147 0.119 0.160Margin AnalysisGross Margin 0.378 0.373 0.370 0.371 0.395EBITDA Margin 0.225 0.223 0.227 0.231 0.259EBIT Margin 0.159 0.155 0.160 0.157 0.185Net Operating Margin (b4 non-rec.) 0.159 0.155 0.160 0.157 0.185Net Operating Margin 0.154 0.172 0.168 0.157 0.189Turnover AnalysisNet Operating Asset Turnover 0.678 0.624 0.551 0.554Net Working Capital Turnover (6.421) (5.510) (4.757) (5.204)Avge Days to Collect Receivables 3.329 3.725 3.592 4.095Avge Inventory Holding Period 7.469 8.435 8.972 7.914Avge Days to Pay Payables 33.258 30.240 26.900 25.598PP&E Turnover 0.753 0.656 0.541 0.535Analysis of Leverage-Long-Term Capital StructureDebt to Equity Ratio 0.883 0.970 1.260 1.393 1.082FFO to Total Debt 0.272 0.210 0.162 0.208CFO to Total Debt 0.353 0.273 0.329 0.209Analysis of Leverage- Short-Term LiquidityCurrent Ratio 0.434 0.284 0.279 0.237 0.322Quick Ratio 0.122 0.141 0.139 0.150 0.235EBIT Interest Coverage 4.284 3.354 2.836 2.362 2.911EBITDA Interest Coverage 6.081 4.814 4.027 3.481 4.071

Company NameCommon Shares OutstandingCARNIVAL CORP595,448 (in 000s at most recent fiscal year end)Estimated Price/Share=$47.28Actual Actual Actual Actual ActualFiscal Year End (MM/DD/YY) 11/30/1994 11/30/1995 11/30/1996 11/30/1997 11/30/1998Income StatementSales (Net) 1,806,016 1,998,150 2,212,572 2,447,468 3,009,306Cost of Goods Sold (1,028,475) (1,131,113) (1,241,269) (1,322,669) (1,619,377)Gross Profit 777,541 867,037 971,303 1,124,799 1,389,929R&D Expense 0 0 0 0 0SG&A Expense (223,272) (248,566) (274,855) (296,533) (369,469)EBITDA 554,269 618,471 696,448 828,266 1,020,460Depreciation & Amortization (110,595) (128,433) (144,987) (167,287) (200,668)EBIT 443,674 490,038 551,461 660,979 819,792Interest Expense (51,378) (63,080) (64,092) (55,898) (57,772)Non-Operating Income (Loss) (478) 33,507 87,978 67,202 88,782EBT 391,818 460,465 575,347 672,283 850,802Income Taxes (10,053) (9,374) (9,045) (6,233) (3,815)Minority Interest in Earnings 0 0 0 0 (11,102)Other Income (Loss) 0 0 0 0 0Net Income Before Ext. Items 381,765 451,091 566,302 666,050 835,885Ext. Items & Disc. Ops. 0 0 0 0 0Preferred Dividends 0 0 0 0 0Net Income (available to common) 381,765 451,091 566,302 666,050 835,885Balance SheetOperating Cash and Market. Sec. 124,220 103,760 124,115 149,727 143,229Receivables 20,789 33,080 38,109 57,090 60,837Inventories 45,122 48,820 53,281 54,970 75,449Other Current Assets 50,318 70,718 75,428 74,238 90,764Total Current Assets 240,449 256,378 290,933 336,025 370,279PP&E (Net) 3,071,431 3,414,823 4,099,038 4,327,413 5,768,114Investments 47,514 51,794 430,330 479,329 546,693Intangibles 233,553 226,571 219,589 212,607 437,464Other Assets 76,876 155,921 61,998 71,401 56,773Total Assets 3,669,823 4,105,487 5,101,888 5,426,775 7,179,323Current Debt 84,644 72,752 66,369 59,620 67,626Accounts Payable 86,750 90,237 84,748 106,783 168,546Income Taxes Payable 0 0 0 0 0Other Current Liabilities 393,563 431,721 511,625 619,739 898,941Total Current Liabilities 564,957 594,710 662,742 786,142 1,135,113Long-Term Debt 1,161,904 1,150,031 1,316,632 1,015,294 1,563,014Other Liabilities 14,028 15,873 0 0 0Deferred Taxes 0 0 91,630 20,241 63,036Minority Interest 0 0 0 0 132,684Total Liabilities 1,740,889 1,760,614 2,071,004 1,821,677 2,893,847Preferred Stock 0 0 0 0 0Paid in Common Capital (Net) 538,345 592,733 823,103 873,885 905,848Retained Earnings 1,390,589 1,752,140 2,207,781 2,731,213 3,379,628Total Common Equity 1,928,934 2,344,873 3,030,884 3,605,098 4,285,476Total Liabilities and Equity 3,669,823 4,105,487 5,101,888 5,426,775 7,179,323Statement of Retained EarningsBeg. Retained Earnings 1,390,589 1,752,140 2,207,781 2,731,213+Net Income 451,091 566,302 666,050 835,885-Common Dividends (85,098) (103,877) (130,456) (178,458)+/-Clean Surplus Plug (Ignore) (4,442) (6,784) (12,162) (9,012)=End. Retained Earnings 1,390,589 1,752,140 2,207,781 2,731,213 3,379,628

Company NameCARNIVAL CORPActual Actual Actual Actual ActualFiscal Year End Date 11/30/1994 11/30/1995 11/30/1996 11/30/1997 11/30/1998Annual Growth RatesSales 10.6% 10.7% 10.6% 23.0%Assets 11.9% 24.3% 6.4% 32.3%Common Equity 21.6% 29.3% 18.9% 18.9%Earnings 18.2% 25.5% 17.6% 25.5%Free Cash Flow to Investors -292.3% #N/A -179.4%Sustainable Growth Rate 17.2% 16.1% 16.7%ProfitabilityReturn on Equity 0.211 0.211 0.201 0.212Return on Equity (b4 non-recurring) 0.196 0.178 0.181 0.189Return on Net Operating Assets 0.152 0.158 0.159 0.169Basic Dupont ModelNet Profit Margin 0.211 0.226 0.256 0.272 0.278x Total Asset Turnover 0.514 0.481 0.465 0.477x Total Leverage 1.819 1.713 1.587 1.598= Return on Equity 0.211 0.211 0.201 0.212Advanced Dupont ModelNet Operating Margin 0.239 0.257 0.284 0.295 0.297x Net Operating Asset Turnover 0.593 0.554 0.538 0.568= Return on Net Operating Assets 0.152 0.158 0.159 0.169Net Borrowing Cost (NBC) 0.050 0.048 0.045 0.043Spread (RNOA - NBC) 0.102 0.109 0.114 0.126Financial Leverage (LEV) 0.578 0.485 0.370 0.343ROE = RNOA + LEV*Spread 0.211 0.211 0.201 0.212Margin AnalysisGross Margin 0.431 0.434 0.439 0.460 0.462EBITDA Margin 0.307 0.310 0.315 0.338 0.339EBIT Margin 0.246 0.245 0.249 0.270 0.272Net Operating Margin (b4 non-rec.) 0.239 0.240 0.245 0.268 0.268Net Operating Margin 0.239 0.257 0.284 0.295 0.297Turnover AnalysisNet Operating Asset Turnover 0.593 0.554 0.538 0.568Net Working Capital Turnover (7.907) (7.750) (7.034) (5.533)Avge Days to Collect Receivables 4.920 5.872 7.099 7.152Avge Inventory Holding Period 15.157 15.012 14.936 14.698Avge Days to Pay Payables 28.650 25.820 26.461 31.426PP&E Turnover 0.616 0.589 0.581 0.596Analysis of Leverage-Long-Term Capital StructureDebt to Equity Ratio 0.646 0.521 0.456 0.298 0.381FFO to Total Debt 0.471 0.604 0.620 0.896CFO to Total Debt 0.475 0.650 0.710 1.118Analysis of Leverage- Short-Term LiquidityCurrent Ratio 0.426 0.431 0.439 0.427 0.326Quick Ratio 0.257 0.230 0.245 0.263 0.180EBIT Interest Coverage 8.635 7.769 8.604 11.825 14.190EBITDA Interest Coverage 10.788 9.805 10.866 14.817 17.664