Note 1. General

Description of Business

We are a global cruise company. We own five cruise brands, Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, and CDF Croisières de France. In addition, we have a 50% investment in a joint venture which operates the brand TUI Cruises.

Basis for Preparation of Consolidated Financial Statements

The unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Estimates are required for the preparation of financial statements in accordance with these principles. Actual results could differ from these estimates. See Note 2. Sumarry of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2010 for a discussion of our significant accounting policies.

All significant intercompany accounts and transactions are eliminated in consolidation. We consolidate entities over which we have control, usually evidenced by a direct ownership interest of greater than 50% and variable interest entities where we are determined to be the primary beneficiary. See Note 6. Goodwill and Other Assets for further information regarding our variable interest entities. For affiliates we do not control but over which we have significant influence on financial and operating policies, usually evidenced by a direct ownership interest from 20% to 50%, the investment is accounted for using the equity method. We consolidate the operating results of Pullmantur and its wholly-owned brand, CDF Croisières de France, on a two-month lag to allow for more timely preparation of our consolidated financial statements. No material events or transactions affecting Pullmantur or CDF Croisières de France, have occurred during the two-month lag period of May 2011 and June 2011 that would require disclosure or adjustment to our consolidated financial statements as of June 30, 2011.

We believe the accompanying unaudited consolidated financial statements contain all normal recurring accruals necessary for a fair statement. Our revenues are seasonal and results for interim periods are not necessarily indicative of results for the entire year.

Revision of Prior Period Financial Statements

In connection with the preparation of our consolidated financial statements for the second quarter of 2011, we identified an error in the manner in which we were amortizing guarantee fees related to three outstanding export credit agency guaranteed loans, and to a much lesser extent, fees associated with our revolving credit facilities. Previously, these fees were amortized on a straight-line basis over the life of the respective loan. We have changed our method to amortize these guarantee fees based on the timing of their payment, which payments are made semi-annually and vary in amount depending on a number of factors, including the relevant outstanding loan balance and our credit rating. In accordance with accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 99, Materiality), we assessed the materiality of the error and concluded that the errors were not material to any of our previously issued financial statements. In accordance with accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), we will revise our previously issued financial statements to correct the effect of these errors. This non-cash revision does not impact our operating income or cash flows for any prior period.

The following tables present the effect of this correction on the Company’s Consolidated Statements of Operations for all periods affected:


	Year Ended December 31, 2010									Year Ended December 31, 2009
	(in thousands, except per share data)
	As Previously Reported			Adjustment			As Revised			As Previously Reported			Adjustment			As Revised
Interest expense, net of interest capitalized	$	(339,393	)	$	(31,814	)	$	(371,207	)	$	(300,012	)	$	(9,936	)	$	(309,948	)
Total other expense		(255,166	)		(31,814	)		(286,980	)		(326,090	)		(9,936	)		(336,026	)
Net Income		547,467			(31,814	)		515,653			162,421			(9,936	)		152,485
Earning per Share:
Basic	$	2.55		$	(0.15	)	$	2.40		$	0.76		$	(0.05	)	$	0.71
Diluted	$	2.51		$	(0.15	)	$	2.37		$	0.75		$	(0.05	)	$	0.71

	Quarter Ended March 31, 2011									Quarter Ended March 31, 2010
	(in thousands, except per share data)
	As Previously Reported			Adjustment			As Revised			As Previously Reported			Adjustment			As Revised
Interest expense, net of interest capitalized	$	(87,483	)	$	(13,142	)	$	(100,625	)	$	(83,924	)	$	(7,604	)	$	(91,528	)
Total other expense		(57,982	)		(13,142	)		(71,124	)		(4,305	)		(7,604	)		(11,909	)
Net Income		91,552			(13,142	)		78,410			87,447			(7,604	)		79,843
Earning per Share:
Basic	$	0.42		$	(0.06	)	$	0.36		$	0.41		$	(0.04	)	$	0.37
Diluted	$	0.42		$	(0.06	)	$	0.36		$	0.40		$	(0.04	)	$	0.37


	Quarter Ended June 30, 2010									Quarter Ended June 30, 2009
	(in thousands, except per share data)
	As Previously Reported			Adjustment			As Revised			As Previously Reported			Adjustment			As Revised
Interest expense, net of interest capitalized	$	(83,846	)	$	(6,815	)	$	(90,661	)	$	(68,327	)	$	(1,190	)	$	(69,517	)

Total other expense		(83,138	)		(6,815	)		(89,953	)		(90,148	)		(1,190	)		(91,338	)
Net Income (Loss)		60,546			(6,815	)		53,731			(35,086	)		(1,190	)		(36,276	)
Earning (Loss) per Share:
Basic	$	0.28		$	(0.03	)	$	0.25		$	(0.16	)	$	(0.01	)	$	(0.17	)
Diluted	$	0.28		$	(0.03	)	$	0.25		$	(0.16	)	$	(0.01	)	$	(0.17	)

	Six Months Ended June 30, 2010									Six Months Ended June 30, 2009
	(in thousands, except per share data)
	As Previously Reported			Adjustment			As Revised			As Previously Reported			Adjustment			As Revised
Interest expense, net of interest capitalized	$	(167,770	)	$	(14,419	)	$	(182,189	)	$	(147,789	)	$	(1,190	)	$	(148,979	)
Total other expense		(87,443	)		(14,419	)		(101,862	)		(170,639	)		(1,190	)		(171,829	)
Net Income (Loss)		147,993			(14,419	)		133,574			(71,324	)		(1,190	)		(72,514	)
Earning (Loss) per Share:
Basic	$	0.69		$	(0.07	)	$	0.62		$	(0.33	)	$	(0.01	)	$	(0.34	)
Diluted	$	0.68		$	(0.07	)	$	0.61		$	(0.33	)	$	(0.01	)	$	(0.34	)

	Quarter Ended September 30, 2010									Quarter Ended September 30, 2009
	(in thousands, except per share data)
	As Previously Reported			Adjustment			As Revised			As Previously Reported			Adjustment			As Revised
Interest expense, net of interest capitalized	$	(82,494	)	$	(6,588	)	$	(89,082	)	$	(73,912	)	$	(684	)	$	(74,596	)
Total other expense		(88,735	)		(6,588	)		(95,323	)		(76,449	)		(684	)		(77,133	)
Net Income		356,767			(6,588	)		350,179			230,392			(684	)		229,708
Earning per Share:
Basic	$	1.66		$	(0.03	)	$	1.63		$	1.08		$	0.00		$	1.07
Diluted	$	1.64		$	(0.03	)	$	1.61		$	1.07		$	0.00		$	1.07

	Nine Months Ended September 30, 2010									Nine Months Ended September 30, 2009
	(in thousands, except per share data)
	As Previously Reported			Adjustment			As Revised			As Previously Reported			Adjustment			As Revised
Interest expense, net of interest capitalized	$	(250,264	)	$	(21,007	)	$	(271,271	)	$	(221,701	)	$	(1,873	)	$	(223,574	)
Total other expense		(176,178	)		(21,007	)		(197,185	)		(247,088	)		(1,873	)		(248,961	)
Net Income		504,760			(21,007	)		483,753			159,068			(1,873	)		157,195
Earning per Share:
Basic	$	2.35		$	(0.10	)	$	2.25		$	0.74		$	(0.01	)	$	0.74
Diluted	$	2.32		$	(0.10	)	$	2.23		$	0.74		$	(0.01	)	$	0.73

The following table presents the effect this error has on the Consolidated Balance Sheet at December 31, 2010:


	As of December 31, 2010							As of December 31, 2009
	(in thousands)
	As Previously Reported		Adjustment			As Revised		As Previously Reported		Adjustment			As Revised
Property and equipment, net	$	16,769,181	$	2,496		$	16,771,677	$	15,268,053	$	384		$	15,268,437
Other assets		1,151,324		(43,571	)		1,107,753		1,146,677		(9,453	)		1,137,224
Total assets		19,694,904		(41,075	)		19,653,829		18,233,494		(9,069	)		18,224,425
Accrued expenses and other liabilities		552,543		675			553,218		521,190		867			522,057
Total current liabilities		3,444,498		675			3,445,173		2,749,030		867			2,749,897
Retained earnings		5,301,748		(41,750	)		5,259,998		4,754,950		(9,936	)		4,745,014
Total shareholders’ equity		7,942,502		(41,750	)		7,900,752		7,499,717		(9,936	)		7,489,781
Total assets and liabilities		19,694,904		(41,075	)		19,653,829		18,233,494		(9,069	)		18,224,425

The correction did not have an effect on the Company’s operating cash flows. The following table presents the effect on the individual line items within operating cash flows on the Company’s Consolidated Statement of Cash Flows for June 30, 2010:


	Six Months Ended June 30, 2010 (in thousands)
	As Previously Reported			Adjustment			Reclassification¹			As Revised
Net income	$	147,993		$	(14,419	)	$	—		$	133,574
Decrease in accrued expenses and other liabilities		(13,514	)		(58	)		—			(13,572	)
Other, net		733			14,477			(7,348	)		7,862

1	Please refer to Note 2. Summary of Significant Accounting Policies for discussion.