Carnival Corporation & plc (CUK) Q4 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, December 20, 2011. I would now like to turn the conference over to Mr. Howard Frank, Vice Chairman and Chief Operating Officer. Please go ahead, sir.

Good morning, everyone. With me this morning is Micky Arison, our Chairman and Chief Executive Officer; David Bernstein, our Chief Financial Officer and Senior VP of Finance; and Beth Roberts, our Vice President of Investor Relations. Before I go to the outlook for 2012, I'll have David take you through our results for the fourth quarter and give you some color on that as well as our 2012 outlook for our cost metrics. David?

Thank you, Howard. Before I begin, please note that some of the remarks on this conference call will be forward-looking. I will refer you to the cautionary statement in today's press release. Also, all of my references to revenue and cost metrics will be in local currencies unless otherwise noted, as this is a more useful measure of business trends. Our earnings per share for the fourth quarter was $0.28. The fourth quarter came in right at the midpoint of our September guidance. Now let's take a look at the fourth quarter operating results versus the prior year. Our capacity increased 6%, with 2/3 of the increase coming from our Europe, Australia and Asian brands, or as we call them, our EAA brands. Our EAA brands grew 10%, while our North American brands grew 3%. Our net ticket -- our net revenue yields increased 1.4% in the fourth quarter, with similar increases in both net ticket and net onboard and other revenue yields. With respect to net ticket revenue yields, our North American brands were up almost 8% despite the negative impact from MENA on European itineraries. The improvement was driven by higher yields in the Caribbean, Alaska, Canada, New England and transatlantic itineraries. Our EAA brands, which are principally cruising in Europe during the fourth quarter, were down over 6%. The yield decline was primarily driven by the impact on MENA itineraries. In net onboard and other revenue yields, we experienced a 1.4% increase. This increase was also driven by our North American brands as our EAA brands were impacted from MENA itinerary changes that resulted in lower occupancies, lower shore excursion revenues and slightly lower spending in other areas. On the cost side, net cruise costs, excluding fuel per available lower berth day, were down 2% versus the prior year. The decline was driven by ship incident repair costs in the prior year. As a result of our ongoing efforts to reduce fuel usage, our consumption per ALBD declined 4% this quarter, continuing our multiyear savings trend. In total, this represents a 15% savings since 2005. However, fuel prices this quarter were 39% higher than last year, which cost us $0.21 per share. In summary, the fourth quarter EPS was $0.28, lower than the 2010 earnings of $0.31 per share, as increased yields and lower net cruise costs excluding fuel mostly offset higher fuel prices. Looking at the full year 2011. Our EPS was $2.42, which was slightly lower than the prior year's $2.47 as increased net revenue yields, a 5% capacity increase and a favorable benefit from currency were more than offset by a 32% increase in the price of fuel. For 2011, our net revenue yields increased 2%. This was driven by an almost 4% improvement in our North American brands, while our EAA brands were in line with the prior year despite all of their challenges. Our 2011 EPS was $0.58 lower than the midpoint of the original guidance that we gave one year ago of $2.90 to $3.10 per share. I think it's fair to say that 2011 was a year of unexpected challenges. The geopolitical unrest in the Middle East and North Africa, as well as the natural disaster in Japan, resulted in over 300 itinerary changes, which we estimate cost us $0.27. Fuel prices increased 23% above our original guidance, and while we benefited from currency, the net effect of fuel and currency cost us an additional $0.41. Absent these items, we would have been at the high end of our original guidance range from a year ago. In the end, our operating companies performed very well, mitigating the impact of MENA, the European debt crisis, recessionary fears and stock market volatility. This is a testament to the quality of our management team, the power of our brands and the value proposition of the cruise business. Turning to cash flow. As Micky indicated in the press release, our cash from operations reached $3.8 billion, which was more than enough to fund the ship expansion and refurbishment programs that required a capital investment of $2.7 billion, leaving us with free cash flow of $1.1 billion. Earlier in 2011, we increased our quarterly dividend to $0.25 per share. Also, during the year, we opportunistically repurchased 14.8 million shares at an average price of $31 for a total of $455 million. The majority of these shares were repurchased during the third quarter. Only 300,000 shares were repurchased since our last conference call. It should be noted that in 2011, the dividends paid and the share repurchases totaled $1.1 billion, which represented all of our 2011 free cash flow. Before turning to the 2012 outlook, I would like to update you on our recently implemented fuel derivative program. The program was intended to mitigate a portion of our economic risk attributable to potentially significant fuel price increases. As part of this program, we will evaluate various derivative products and strategies. To date, we have bought 0 cost collars for approximately 10% of our estimated fuel consumption for the second half of fiscal 2012 through fiscal 2015, with ceilings ranging from $125 to $135 and floors ranging from $71 to $75. We designed the fuel derivative program to maximize operational flexibility by utilizing derivative markets with significant trading liquidity. These derivatives act as effective economic hedges. However, hedge accounting was not applied. Accordingly, the impact of realized gains and losses on the fuel derivatives that mature each period, as well as changes in unrealized gains and losses resulting from mark-to-market adjustments on our outstanding fuel derivatives, are recorded as a nonoperating item in our P&L. We believe it's more meaningful to evaluate our earnings performance by excluding the impact of the unrealized gains and losses until the gains and losses are realized, and we've added a line to our P&L to reflect this exclusion, labeled Non-GAAP Diluted Earnings Per Share. Going forward, we will not include in our earnings guidance any year-to-date impact or any future estimates of the unrealized gains and losses on the fuel derivatives. Accordingly, our earnings guidance will be on a non-GAAP basis. However, we will forecast realized gains and losses on fuel derivatives by applying the current Brent oil prices to the derivatives that settle in the forecast period. Based on this approach and the current prices, we are not forecasting any realized gains or losses for 2012 under our current fuel derivative portfolio. Now turning to our 2012 outlook. I will skip net revenue yields as Howard will discuss that shortly. On the cost side, for the full year, net cruise costs per available lower berth day are forecasted to be flat versus the prior year, which is at the low end of our longer-term guidance of flat to half of inflation. As fuel and currency are assumptions that impact our results, it should be noted that the current spot price for fuel used in our guidance is essentially in line with 2011's average price. However, based on the current FX rates, currency is expected to have a negative impact on our earnings next year of $0.17. On a final note, I wanted to share with you our current rules of thumb about the impact of fuel and currency on our results. To start with, a 10% change in the price of fuel represents a $225 million or $0.29 per share impact for the full year. In addition, note that the 10% change obviously moves along with the price of fuel. With respect to FX movement, the 10% change in all relevant currencies relative to the U.S. dollar would impact our P&L by approximately $0.25 a share for the full year. At this point, I will turn the call over to Howard.

Thank you, David. Let me frame for you, if you will, the 2012 outlook for our business. We have 3 new ships scheduled for delivery in 2012: the Costa Fascinosa, which gets delivered in late April; the AIDAmar in May; and the Carnival Breeze in late May. So we have 3 spring deliveries. This will drive a fleet-wide capacity increase of 4.8%, 3.6% for the North America fleet and 6.6% for the EAA fleet. Earnings guidance for 2012 has been established with a range of $2.55 to $2.85, which gives us a midpoint of $2.70 a share. Using the midpoint, we estimate that operating cash flow for 2012 will approach $4 billion. With CapEx estimated at $2.6 billion, free cash flow for the year should be approximately $1.4 billion. With 2 ships currently scheduled for delivery in each of 2013, '14 and '15, we are expecting that free cash flow will continue to increase in each of these subsequent years. Turning back to our 2012 earnings guidance, we have established this wider range of guidance this year, given the uncertain global economic outlook and the even greater uncertainty in European markets because of the sovereign debt crisis. The $0.30 per share range for 2012 compares to the $0.20 share range we have used in recent years. Needless to say, our crystal ball for 2012 is somewhat hazier than in past years and thus a little more caution to our guidance. However, notwithstanding the global economic uncertainty, we are confident we can grow our earnings in 2012. The amount of earnings growth will depend on the revenue yield improvement we can achieve during the year. And turning now to our booking trends, our more recent booking trends. There has been an ebb and flow to booking patterns over the last 13 weeks. Lower consumer confidence around the world and worries about the European sovereign debt crisis and its effect on European consumer pocketbooks have caused some delay in consumer vacation decisions and resulted in a closer end booking window. Although fleet-wide booking volumes during the last 13-week period have been running nicely higher year-over-year, we have achieved this volume by reducing prices for our cruises. But the good news is that consumers have responded to these lower prices and the booking volumes have increased. North America brand booking volumes for the 13 weeks have been running higher than a year ago at lower prices. EAA brand bookings are slightly higher at lower prices. More recent bookings over the last 6 weeks have seen an even stronger pickup in booking volumes for both North America and Europe brands, which is an encouraging sign. The booking patterns during the upcoming wave season, which starts in early January, will give us a better indicator as to what the revenue yield picture will look like for the remainder of the year. In terms of our current booking status at the present time, based on bookings taken to date, constant dollar ticket prices for both North America and EAA brands are slightly higher than a year ago on slightly lower year occupancies. This is a combination of stronger booking patterns during the last spring and summer and the weaker prices for bookings experienced during the 13 -- this last 13-week period. We are currently guiding to yield improvement of a range of 1% to 2% for the year or a midpoint of 1.5%. To some degree, this yield improvement results from the significant hit we took on pricing and occupancy for our European and Mediterranean itineraries in 2011, which arose from the political upheavals in the Middle East and North Africa. We expect to improve our year-over-year occupancy for these cruises, which will be a major contributor to the forecasted revenue yield improvement in 2012. Given the bookings already taken for 2012 and our forecasted pricing for the remainder of the year, which has factored in the economic headwinds in our various markets, we are comfortable with the 1% to 2% revenue yield range improvement for the year. In terms of our earnings guidance for 2012, broadly speaking, our forecasted earnings improvement for 2012 comes from a higher yield of approximately 1.5%, a fleet-wide capacity increase of 4.8%, and it's offset by the negative effect of the changes in currency, which David mentioned before, on a year-over-year basis. Our fuel pricing forecast is relatively unchanged year-over-year, although it does have a significant impact on the first quarter of 2012, which I will comment on later. As we indicated in the press release, earnings for the first quarter of 2012 will be lower than a year ago, principally because of the higher fuel costs and the higher number of dry-dock days. However, we expect to get back to positive earnings growth from the second quarter onward as yield comparisons become more favorable. For the present time, we plan to maintain our quarterly dividend of $0.25 per share, which represents approximately 37% of our earnings and is in line with our stated guidance of paying a dividend from 30% to 40% of earnings. Now turning to the first quarter. Fleet-wide capacity for the first quarter is expected to be 4.9% higher than last year, 4.5% for North America brands and 5.6% for EAA brands. At the present time, first quarter occupancies on a fleet-wide basis was slightly higher year-over-year, with constant dollar pricing also higher. There's very little inventory left to sell at this point for the first quarter. North America brands in the first quarter are 65% in the Caribbean, approximately the same as last year with the balance in various other itineraries. Caribbean pricing is higher than a year ago at slightly higher occupancies as compared to last year. Pricing for all other itineraries is also slightly higher than a year ago at slightly lower occupancies. For EAA brands, they are 22% in the Caribbean in the first quarter versus 20% last year, 19% in Europe and down from 22% last year and 18% in South America versus 16% last year, so a bit of a shift from Europe to South America, with the balance in all other itineraries. EAA constant dollar pricing in the Caribbean is higher than a year ago on lower occupancies. EAA pricing in Europe is lower year-over-year but with higher occupancies, and EAA South America pricing is nicely higher than a year ago on higher occupancies. With respect to the first quarter outlook, with a good percentage of our bookings for the first quarter completed, we are forecasting that constant dollar revenue yields for the quarter will increase in 1.5% to 2.5% range compared to last year. Net cruise costs excluding fuel are expected to increase in the 3.5% to 4.5% range in constant dollars, largely due to the higher year-over-year dry-docking days scheduled in the first quarter of 2012. Fuel costs are significantly higher in the first quarter this year versus last year and are expected to increase by approximately $93 million or $0.12 a share. Incremental costs for the increased number of dry-dock days versus the first quarter of 2011 is approximately $0.06 a share. This is a timing difference in these dry-dock days that will reverse during the remainder of the year as the dry-dock days for the full year 2012 is approximately the same as 2011. Taking all these factors into consideration, including the higher fuel prices, the company is guiding first quarter non-GAAP diluted earnings to be in the range of $0.06 to $0.10 per share. For an apples-to-apples comparison, if we add back the $0.18 per share for the fuel price increases in dry-dock day, the earning per share would have been $0.24 to $0.28 versus the $0.19 per share in 2011. Turning to the second quarter now, fleet-wide capacity for the second quarter is up 4.7%, 2.9% for North America brands and 7.6% for EAA brands. At the present time on a fleet-wide basis, constant dollar pricing is slightly higher than a year ago, with occupancies lower than last year. For North American brands, they are 56% in the Caribbean, approximately the same as last year with the balance in various other itineraries. Caribbean pricing is nicely higher than a year ago on approximately the same occupancy levels as last year. Pricing for all other itineraries taken together is higher than a year ago on lower occupancies. For EAA brands, they are 53% in Europe, down from 55% last year, with the balance in various other markets. EAA brand constant dollar European cruise pricing is slightly higher than a year ago on slightly lower occupancies. EAA brand pricing on all other itineraries taken together is slightly lower than last year, also at lower occupancies. On an overall basis, our estimate is that constant dollar revenue yields will be flattish for the second quarter by the time it closes. Turning now to the third quarter of 2012. Capacity in that third quarter is expected to increase 4.7%, 3.3% in North America and 7% in EAA. Third quarter booking patterns are still in early development, so I caution you not to read too much into this data. On a fleet-wide basis, third quarter constant dollar pricing is higher than a year ago on lower occupancies. For North America brands, capacity in the third quarter is 39% in the Caribbean versus 36% last year; 24% in Alaska, slightly higher than a year ago; and 25% in Europe, which is about the same as last year. Pricing for Caribbean, Alaska and Europe itineraries are all higher than a year ago. Occupancies for the Caribbean and Alaska cruises are running at about the same level as last year, with occupancies for Europe cruises lower than last year. EAA brand capacity is 88% in European itineraries, in line with last year. EAA brand constant dollar pricing for European and all other itineraries is nicely higher than a year ago on lower occupancies. While the pricing picture for the third quarter is quite good right now, there is a considerable amount of third quarter inventory remaining to be sold. Much of the third quarter revenue picture will depend on the strength of the 2012 wave season. As I mentioned earlier, we expect that revenue yields for the last 3 quarters of 2012 will benefit from the easier comparisons to the 2011 year. We took a hit as a result of the itinerary disruptions from MENA. All things being equal, that should have produced higher yield improvement in 2012. However, 2012 is proving more challenging than originally thought because of the European sovereign debt crisis and lower consumer confidence in Europe. So that's our thoughts about how 2012 is currently shaping up. And with that, Tommy, I'll turn it back to you for -- we're ready for questions.

[Operator Instructions] And our first question comes from the line of Felicia Hendrix from Barclays Capital.

Howard, I was wondering if you could just -- you mentioned that you are seeing lower pricing now. And I was just wondering if you could give us some color on that. For example, how much discounting or how much lower are you seeing in terms of pricing of where you were hoping to be? And then also on the first quarter, if you look at it kind of month-by-month, December, January, February, I was wondering if you're seeing any particular patterns there. For example, is pricing or demand strengthening or weakening within the quarter?

I mean, when you look at the pricing picture across the 10 brands, it's really an amalgamation of what's happening in each of their markets, and demand profiles can differ greatly. In fact, in some of the markets, we're doing just fine on pricing. In other markets, we're feeling more -- we're seeing less demand, particularly, I think more so in Europe than in North America, broadly speaking. That's been more of a challenge for us. We have taken a number of pricing actions in those markets, and as I mentioned, where we're seeing the softer pricing. And we're also looking at options for how to move inventory and moving from one market to another and that sort of thing in Europe, which we think will be -- which will have some benefit. But clearly, if you look at southern European markets, it's more of a challenge, less so as we see in the U.K. and Germany. And broadly speaking, U.S., more or less, seems to be holding up well, except I think we're seeing more of a challenge on our European programs this coming summer for our North American brands. And that could be a combination of factors including higher air costs and just some -- all the noise that Americans are hearing about what's going on in Europe. Although you wouldn't think it would affect their vacation decisions, I think the psychology of the consumer today is that there is a greater concern. And the patterns come closer in, but we're holding it. We're holding as much pricing as we can. We think that if we have a decent wave season, we should be just fine.

I was going to say that keep in mind that at this time last year, we were looking at a very different economic environment overall. And so when we say pricing's down, it's down versus a very strong period at the end of last year on a year-over-year basis.

And things didn't start deteriorating. We're not going to annualize until about mid-February when the Arab Spring started and all this other European stuff started. So right now, year-over-year, we're in comparisons to a very, very strong period last year. And we were -- we and our competitors last fall were very, very optimistic about '11.

On first quarter pricing, Felicia, I mean, we've sold a good part of the first quarter in the fall, and it seems to have shaped up okay. I mean, but we had a lot of that inventory sold, so the last 13 weeks have had less impact on the first quarter, more impact on the second and third quarter. And we're in pretty good shape for the first quarter at this point. I'm not quite sure exactly what you were driving at.

She was asking about the months. And to be honest, Felicia, with 5,000 voyages, 10 brands and everything else, we look at it quarter-by-quarter and we leave the brands to get into the detail month-by-month.

Okay, that's helpful. And then just Howard, you just touched upon something with Europe, and I think you've kind of answered my next question. But if you look at your major regions, the U.K., Italy, Germany, you said Italy was probably the weakest. But if you could just give us kind of what you're seeing in terms of the behavior from each of those markets, that would be helpful.

Yes, I mean, basically that's it. I mean, I think we're pleasantly surprised by what we're seeing in the U.K. and Germany. Of course, the economy is still holding up well, but given all the austerity measures that have been taken by the U.K. government, our business seems to be holding up quite nicely. But when I talk about southern Europe, which is mostly I'm thinking about Spain and Italy, but to some degree, France, I think that psychology is affecting the consumer, and it's a much more -- especially in Italy, Italians are quite conservative, and they're concerned about -- there's no clear path for them right now. And I think once the austerity measures hopefully are passed by the Italian government, people will understand what they have and what they are going to have to pay and in terms of increased taxes and increased VAT. And I think knowing the reality, I think gets the issue behind them, and we found that to be true in the U.K. So I think if once those issues are dealt with in these countries, I think the consumer confidence will start to come back some.

Can I just add that the countries we're talking about are basically in their off-season period. And first quarter, the wintertime tends to be a slow time for them, anyway. And if the booking pattern is in, it's too early to really see the third quarter kick in. So some of this may be a function of booking pattern.

And we'll proceed to our next question, the line of Harry Curtis with Nomura.

Just a couple of quick questions. First of all, I'm curious as to why when you devised your 2012 estimates, you used the full year for the trailing 12 months for fuel, but the current FX number. And then secondly, on a related topic, if you could give us your thoughts on the spread between Brent and bunker. It's stubbornly wide. And then recently although the Europe -- although the euro is down around 10%, bunker is down only a fraction of that. So why do you think bunker pricing is resisting the declines that you typically occur when the euro and Brent are lower?

Well, to just start with, we didn't use the historical rates for our 2012 guidance when it comes to fuel. We used the current spot price. It just so happens that the current spot price for 2012 happens to be very much in line with 2011. That's more of a coincidence. It's not that we used the 2011. As far as Brent and bunker, they're really -- there was a big dislocation in the market that seemed to occur about a year ago, where Brent and bunker seemed to move in different directions. I think they got as wide as about $25 or $30 a barrel difference. There's a lot of issues with WTI and Brent and the correlation between the 2. But if you look at over time, I think what you'll find is that Brent and bunker or our fuel prices had a much better correlation. The correlation used to be in the 70s, in the mid-70s. It did move up into the 90s. It's recently come back to the high 80s, and it has stayed in the high 80s, low 90s for a period of time now, so there's been a pretty good correlation. One of the reasons why we chose to use Brent as part of our a fuel derivative program, the long-term movement between the 70s and the high 80s has a lot to do with refining capacity and all types of things that we've talked about historically in the conference call, so not expecting that the crack spreads or the -- will come down when you compare our fuel price to Brent. As far as your last question, the correlation between the euro and bunker, I mean, we've said historically that there is a -- that these move in opposite directions. That has worked most of the time, but they're not a complete offset to each other. There's many other economic factors affecting these 2 items. I'm sure that all of the dislocation and all of the debt crisis and everything else going on in Europe today is causing the euro to move, and that's much more so than the overall price of bunker. So while they have been a nice natural hedge, it doesn't always work perfectly for us, and they don't move in opposite directions all the time.

And just a follow-up question. Have you seen any significant differences in refining capacity for bunker in the last 12 months versus, say, the past 3 years?

Well, bunker is a residual, and I think one of the reasons just -- not significant differences, but as they get better and better in their refining capacity, there's less and less residual, and that's one of the reasons why the crack spread has moved up. It's what I was referring to before.

And we'll proceed to our next question from the line of Robin Farley with UBS.

Great. I have 2 questions. One is on the expense side. And I know your net cruise costs x fuel in Q1 is just the timing issue, and the full year looks fine. But Q4, I think your net cruise costs x fuel maybe came in just slightly worse than your guidance originally. So if you could just give a little color on that. And then I also have a question about European bookings, but I'll just ask this extra [ph].

Sure. Yes, our net cruise costs in the fourth quarter came in a little bit above guidance. It was a few cents above. The timing, as I've always said, by quarter is very, very difficult. I mean, if you went back to the third quarter, we were $0.05 below guidance in terms of cruise costs. It just there's a lot of little items relating to a variety of things. It's very hard to predict on a $9 billion cost base every single dollar we're going to spend and the timing within a month or a quarter. So we missed it by a few cents, but there were a couple other positives that offset that, and we did wind up right on the guidance.

Okay, great. And '12 obviously looks like it's no issue. Then my other question on European bookings. Obviously, there's a lot of concern about the European consumer and -- but since the cost of brand in particular is not really comping against a great year or even a normal year this past year with all the disruption from the Middle East and North Africa and ports in Japan. I guess, I wonder if it would sort of help investors to think about why yields can still be up, if you could quantify. I know you don't normally give yield change by brand, but just kind of a ballpark sense about maybe how much cost yields were down in 2011, just sort of make it clear that it's comping against a challenging year, that you have kind of easier comps than one would think just from looking at the economy.

Robin, not to get involved with yield information with individual brands. Having said that, Costa did feel the biggest hit last year from MENA, given the disruption, enormous disruption to their business. So that has a -- kind of go around and come full circle on it. I think that they're certainly set -- they certainly can anticipate what's going to happen a lot better this year than last year. And I think what they're looking for is they're going to drive a lot more occupancy this year than last year, so they will benefit from occupancy improvement, which will give them yield improvement. But I think it's still early to say exactly. Clearly, we have our estimates, and that's where we base our guidance on. And we feel comfortable that Costa's going to have a good year and especially because they can yield manage through this 2012, barring another breakout of some kind of geopolitical event in their part of the world. But we're pretty comfortable with where they are right now and feel that they're going to have a good year, and they feel they're going to have a good year. They're going in feeling confident right now.

Just to reinforce one thing Howard said is that when you're moving around so many itineraries so late, it just made it very difficult to fill to their normal full occupancy. It was just too late. And although they did recover pretty well considering the circumstances, the reality is that a lot of the improvement for them next year, as Howard said and I just want to reiterate, is occupancy driven, not price driven.

Keep in mind that when you look at last year, we're lapping the MENA impact. We had said the MENA was a negative impact for the whole company last year of 1.7%. It was probably for -- or EAA brands was probably over double that. And so while they were covering that yield, there is an economic factor which is partially off, making it more difficult, as Howard and Micky indicated. So it's the MENA impact that is -- and lapping that, that's allowing us to show the year-over-year yield increase despite everything else.

And we'll proceed to our next question from the line of Steven Kent with Goldman Sachs.

Could you just talk about how you're thinking about cash flow? It seems to me that you've now started to lock in your building program. You've started to lock in your fuel program, and that gives you a lot more opportunity to be more aggressive on buyback or dividend, and you do mention in your commentary that you are generating a lot of cash flow. Can Micky or one of you talk about how the Board is starting to think about the buyback or the dividend? And what are some of the key measures you're looking at? And then I know you gave this about the dry docks, I think David, how much that was impacting you. But can you just repeat again what those dry docks are and if they're one-time and how we should be thinking about that impact to the cost saves? And essentially, what I'm asking is if you didn't have those dry docks, would you be showing an improvement on a cost saving basis in 2012?

Why don't you deal with the dry dock first?

Yes, I'll deal with the dry docks. Overall, Steve, ships go into dry docks, depending on the ships, once every 3 years, twice every 5 years. So there's a regular schedule for dry docks, and we're always going to have dry docks. On a year-over-year basis, '11 to '12, the total number of dry-dock days were pretty much in line. They went up slightly with capacity overall. So on a year-over-year basis, it's really no issue. It's just the timing. Remember, the brands individually choose to do dry docks in what appears to be the most convenient time for them, usually the lowest profit season. And this year, we just happened to have more dry docks scheduled for the first quarter and less dry docks scheduled for the second and fourth quarter, so it's just the timing within the year and not an issue on an overall basis for the year. And our cruise costs are flat. The dry docks aren't affecting cruise costs for the full year, only the seasonalization of cruise costs between the quarter. As far as the cash flow is concerned, I think the story really hasn't changed from what we've been saying for the last couple of years. We've been talking about the fact that we do expect to have free cash flow. It's our goal to return the free cash flow to shareholders. We've indicated, I think Howard mentioned in his comments, the 30% to 40% payout ratio for regular quarterly dividend. In addition to that, we've constantly been saying we will look at opportunistic share repurchases. And if need be, we can look at an additional annual dividend on top of that. We managed through the quarterly dividend and the opportunistic share repurchases to return all our free cash flow in 2011. And in 2012, we'll take a look at the opportunities as they arise.

And we'll proceed to our next question from the line of Greg Badishkanian from Citigroup.

Can you talk a little bit about the Northern European consumer? You mentioned Spain, there, that made [ph] buying patterns for cruises were soft. But how about the rest of Europe in terms of sourcing?

Well, I did say that Germany was doing well, that U.K. is holding up also quite well, even given the new austerity measures. And I mean, Scandinavia -- I mean, our business in northern Europe tends to be going reasonably well right now. Scandinavia, we don't source a huge amount of passengers from Scandinavia, so I really don't know the answer to that. But we know in the Netherlands, where we do have significant sourcing, that that's going well. That country's economy is okay. And it really seems to be going in the direction where the economies are going in those countries and the consumer confidence in those countries. And that's what -- and we're seeing it in demand patterns as well.

Helpful. And with respect here, the 1% to 2% net yield guidance for 2012, what type of macro or geopolitical outlook are you assuming? Are you assuming kind of the trend stays the same or maybe things get a little worse? What are you kind of -- what's going into your model?

I'm assuming -- look, when we provide these yield outlooks, it's an amalgamation or an aggregation of 10 different markets and different brands, and each one is a little bit different. But I think it's fair to say that we're assuming it's pretty much as is right now. And as our brand managers, revenue managers see their business, in many cases, assumes that pricing will continue to be a challenge in certain of these markets but less so in the stronger markets. So it's really a combination of all those things, including the U.S. market, which seems to be relatively good right now. I mean, all 3 of our U.S. brands seem to be performing well, with the possible exception, as I mentioned earlier, about summer Europe, which is okay from a pricing standpoint at this point but has fallen behind from an occupancy. But we're sustaining it right now, and that could be a function of how the U.S. consumer sees Europe right now with all the noise over there and so on. And we think that's going to -- but we think Europe is going to be fine, actually. We don't have that much increase in capacity, so we should be doing okay in Europe for this summer.

And we'll proceed to our next question, the line of Steve Wieczynski from Stifel, Nicolaus. [Technical Difficulty] Steven Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division: Howard, you talked about earlier in your remarks the booking window starting to contract. I just want to know if you could kind of compare where we are today relative to where we were back in 2008, 2009 and just kind of what your thought process is in terms of as we move into 2012, if that can get -- if that's going to -- if you guys think that's going to contract any more?

Well, I mean, let me -- I really can't compare it to 2008. I'll let somebody else speak to that issue. But before that, let me comment on the booking window for 2012. We do believe that while the booking window has come in, it's not a huge amount but it has come in, which always makes it more of a challenge when you're sitting in a revenue management seat in terms of how to price your cruises and how firm you want to be on your pricing, knowing the business does come in late. But at the end of the day, we fill up. We'll fill up with the same kind of occupancy levels as last year. Actually, this year, we're going to probably be up at least a point or more from an occupancy standpoint. What we need to manage through that process, given the closer end booking window, and each of the revenue management teams in different brands do it slightly different. They don't use the same revenue management approach. And so it will depend on how they see the world. But as long as bookings are sustainable at the levels that we're talking about today, we should be just fine. Because as I said, bookings for the last 13 weeks, actually, there's been some ebb and flows, but they've been okay. I mean, we've been able to move pricing slightly downward, and the bookings have picked up. And in the last 6 weeks, it's even been stronger. Don't ask me why, by the way. You never really know, but bookings have been stronger. And if that sustains itself, the booking window will extend out. That's what we look to try to do, and then we can revenue management pricing a little bit better.

In comparison to our booking window today and compared to last year and the year before, over the last 2 years, we have indicated a number of times on just about every conference call that we were slightly behind in terms of bookings because the booking window has moved in a little bit. But we are being patient because we do believe that people will book. We consistently, as Howard said, do fill up and get the pricing. We could always move the booking window further out, but there's a cost to that in pricing, so we'd rather be patient. And it seems to be working well for us over the last couple of years. In terms of 2008, 2008, if you go back, that was the year that was really an aberration. If you -- we had looked back from '03 through 2011, and the one year that really stuck out was 2008. I think on the March '08 conference call, we had said that the booking window was historically as far out as we had ever seen it, and our customer deposits were as high as they had ever been at that point in time. So '08's an aberration, but in the last couple of years, it has moved in a little bit. Steven Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division: Okay, got you. And then for Howard, I guess this is kind of a hearsay type question, not sure if you're even going to be able to answer it. But if you guys didn't lower pricing over the last 12 to 6 weeks or 2 months, do you still think volumes would be ahead of where they were versus last year?

Well, I think the reason that we lowered the pricing was to pick up the volumes. Had we not lowered the prices, would we have had the higher volumes? Steve, I'm not in a position to answer you. And really, it is a market-by-market decision, and each of the brands make it, and I think they felt they had to do it. So my guess is if they were to answer the question, they would say, "No, we don't think we would have had these volumes." Now whether they're right or not, I don't know. But I certainly don't know the answer to that question. I assume that they reduced prices in order to pick up the volumes. And if they're able to do that for a sustainable period of time, they feel they can start to move the pricing back up a little bit, which is the purpose of moving the pricing down to try to get back to where you want to be from a demand standpoint. And then you gradually tweak the pricing up, and that's what a lot of the brands will actually do.

And we'll proceed to our next question, the line of Tim Conder with Wells Fargo Securities.

Back to the impact that you're going to have on MENA this year. David or Howard, I think you alluded to in a prior question that basically, absent the 1.7% impact on yields from MENA, you would anticipate the net yield guidance being down on a constant dollar basis. Any additional color you can give there, order of magnitude that you're looking for in the overall rebound? I guess another way to phrase the question is, that 1.7%, if your overall pricing, say, was down $100, do you expect to recover a certain percentage of that this year from the MENA impact?

Yes, it's so hard to say, Tim, because there are so many factors that are out there -- MENA, itinerary changes, economic situations -- that to get more definitive and to quantify it to that level would be very difficult. It would just be guesswork. What I was just trying to say in response to the question, our yield projection being up and giving people some comfort that the up yield was a reasonable estimate was trying to compare it to the MENA impact last year.

Okay, okay. So again, I mean, it's fair to say that yields x the MENA recovery would be down as far as your projections for '12?

Yes. Well, the midpoint of our guidance, if you take the midpoint of 1.5% and you subtract 1.7%, I guess that's down 0.2%.

As David said, as you got into the second half of '11, part of the MENA impact had to be the economic issues in Europe as well, and those 2 things clouded each other, and it's very hard to kind of pinpoint to the 1/10 of 1% what we're dealing with. I mean, if we just -- all we can say is that right now, we're comparing to a period where we didn't have economic turmoil, we didn't have -- and we're comparing that booking pattern to our booking pattern now. And until we annualize, it's difficult to kind of come up with these numbers, but I think we've taken our best shot at it.

Okay, very fair, Micky. And maybe the second question, Micky, maybe more for you or whoever wants to take it. Any commentary that you can talk about on your market shares, gains relative to the tour operators and especially given the commentary coming out of struggles out of certain tour operators, in particular Thomas Cook? And then just the broad commentary that's come out of both Thomas Cook and TUI about their perspective business. How are your market shares relative to the major tour operators or other alternatives?

Obviously, our market share -- the package holiday business in Europe in general is shrinking, while the cruise business is growing. So obviously, we're effectively taking share, but our share is so small in numbers compared to the overall package holiday business in Europe, it's unrecognizable. I would remind you that while these guys are tour operators, they're also very, very powerful retail travel agents. And Thomas Cook is a very, very good distributor for us, and we're working very closely with Thomas Cook to make sure that our distribution with them continues to be effective. And I must say that while their business is down, they're recovering, and we're very hopeful that they'll get out of this fine.

And we'll proceed to our next question from the line of Ian Rennardson from Jefferies International. Ian Rennardson - Jefferies & Company, Inc., Research Division: Two or 3 questions here. Number one, the capacity numbers you gave, Howard, does that include -- I think I read today you've sold the Pacific Sun from the middle of next year. Are those capacity increases before or after that? The second question is regarding the dividend. Now last year or this year, 2011, you made the decision on the quarterly dividend in February, I think at a board meeting. Is that the case for the next dividend decision or was that already made into 2012?

I thought you said you have 2 questions, Ian, or 3 questions? Ian Rennardson - Jefferies & Company, Inc., Research Division: That was 2 questions, sorry. Can't count.

The capacity is after taking out the Pacific Sun midway through the year in Australia. And as to the dividend, I think what I said is that right now, the plan is to pay the $0.25 quarterly dividend. That doesn't mean that we couldn't take a decision later on in the year. It could be February, it could be maybe later on the year, depending on how the year unfolds, that we would take another look at the standard dividend or look at alternative share buybacks or a special dividend at the end of the year. We're just looking at different alternatives, so we're keeping our options open and it's ultimately a Board decision.

Generally, I think last year, we did it after the January board -- quarterly board meeting. And we review it with the Board every quarter and it is totally a Board decision. I would want to make one comment. When we made our last new building announcement, we tried to make it clear that, that new building announcement shouldn't be considered totally incremental capacity because we were working to move out capacity. And since we made that announcement, we've sold 2 ships, the Costa Marina and the Pacific Sun. And that continues to be our strategy. While we're building 2 or 3 ships a year, we do intend to move some ships out over time. Ian Rennardson - Jefferies & Company, Inc., Research Division: And just as a follow-up on the disposal of the Pacific Sun, we know what your accounting treatment of these is regarding depreciation residual values. Well, how did the value of what you got for the ship equate to your accounting treatment?

We took a very small charge in the...

Net, it was like $0.01 a share, a very small...

We took that in the third quarter because we already had a handshake for that sale then. It was only finalized the day we announced it.

And we'll proceed to our next question from the line of Jamie Rollo from Morgan Stanley.

So just to ask a question. Just on your yield guidance, which is pretty tight under the sort of high uncertain circumstances, you say. You also said a lot depends on the wave season. I'm wondering what sort of wave you're factoring in. Are you assuming no further price weakness from here like we've seen in the last 12 weeks? Or are you factoring in some further weakness into the lower end of your yield guidance?

I mean, Jamie, it's hard to answer that question because as I say, it's a composite number. So in certain markets, where we're sustaining pricing and our volumes are good, we continue to probably believe that we'll be able to do that. In other markets, where we're experiencing some lower pricing and we're probably using -- I think the view is that, that's going to be factored into how the yield will be for that particular market. And we add all of them all up at the end of the day, and we come up with the overall guidance, which is the 1% to 2%. And I think as I indicated to you earlier in my comments that I'm comfortable with that guidance right now. That doesn't mean that if there's an extraordinary event that occurs, the dissolution of the European currency, something else could affect it. But right now, factoring in all of the events we see, we think that's a pretty good range to be in right now and we're pretty comfortable with it.

I would just say anecdotally, not referencing our guidance, but for us to be having the kind of volumes we're having at what is historically the slowest time of the year, would be a nice indicator that we should expect a good wave. And I personally would expect that we'd have a pretty good wave.

There's also probably a dividing line, as Micky indicated, in February, with the whole MENA impact, where perhaps before that line, we may be running behind last year in terms of prices. But once you get post that line and the comparisons get much easier, we'll be running well ahead in terms of pricing overall.

Not just pricing but also just in occupancy as well.

In occupancy as well.

Yes. And occupancy is driving a lot of that, Jamie, as we indicated. Probably, certainly more than 50% of the yield improvement we're talking about at the midpoint, will be occupancy driven.

At the time [indiscernible] started, some of our brands were experiencing negative bookings. I mean, they were getting more cancellations than they were bookings for a period of time.

If I can just sort of follow on from that then. You mentioned lower pricing over the last 12 weeks. Could you just sort of quantify what sort of yield reductions you've seen just in the last 12 weeks just so we can get a feeling for the trajectory? I mean, obviously, you said your 2012 yield guidance is a product of better pricing over the summer but weaker pricing in the last 12 weeks. But what's the delta been, please?

It's not that readily available at our fingertips.

Understand, Jamie, we're talking weaker versus last year versus what it was weaker versus last year, 3 months ago. So it's all relative to last year where we didn't have an economic situation. We didn't have a MENA situation yet. So again, the comparisons, remember was we were in a very optimistic booking trend this time last year. And you can remember some of the statements that were being made by us and competitors in the fall of last year, which were very optimistic. And that's what we're comparing to.

I would say this just to kind of try to help you in some way, Jamie, is that where we've seen -- the overall pricing weakness that we've seen in bookings is not significant. However, it is weaker and it's a little bit more weaker in the Europe -- for the European brands than it is for the American brands, which is fully understandable from our standpoint. We understand what's going on, especially southern European markets.

Okay. And one really quick one on the fuel protection strategy. What's sort of the long-term targets? I presume it's not going to be 10% for the options. Is there a soft figure you have in mind?

No, we haven't decided on a specific target. We will, over time, continue to layer in more protection, but we'll be opportunistic and we'll make those decisions as we go along.

And we'll proceed to our next question from the line of Kevin Milota with JPMorgan. Kevin Milota - JP Morgan Chase & Co, Research Division: Most of my questions have been answered, but just one surrounding the consumer. I was wondering if you've seen any differentiation between some of your higher-end brands and more of your contemporary segmented brands. And speaking to, are your higher price pointed rooms getting taken out, and you still have a tremendous amount of lower price capacity, that would be great.

That last part is tough to note because it will vary -- it could vary significantly by brand. I'll say this, Kevin, though that there's not a huge difference between our premium and contemporary brands in terms of their patterns right now nor for that matter. As we look at the business in certain parts -- certain of our markets, I think part of the reasons we're holding price and bookings have been strong in certain markets is because some of the premium products here in the U.S. and to some degree in Europe and our market segment, which is towards the retired people or wealthier people, is holding up fine. We have seen that well. So that has held up nicely for us. And I think that's -- so even in the U.K. where there's a huge -- a number of austerity programs being implemented, it seems to affect less the consumer who is retired and they feel more comfortable with their holdings and their retirement plans and so on. So we're getting good business out of the U.K. And in terms of our U.S. premium brands, they're doing quite nicely, yes. With the one exception, I would say, is that what I mentioned before again, is the summer Europe is still falling behind, but we have taken pricing down.

And we'll proceed to our next question, the line of Assia Georgieva from Infinity Research.

I had one question, Howard. You mentioned that for Q2, pricing is flat, and again as Micky and David pointed out, we still need to get to that mid-February, late February time point to start annualizing. Hypothetical scenario, where today's pricing stayed flat through the end of Q2, the actual dollar amount, do you think you would be able to show yield improvement?

Well look, this is what I said. I think it's 2 things. One is that Q2 pricing is now slightly ahead year-over-year. And I think what I also went on to say is that we expect that by the end of the close of the second quarter, it should be flattish. And when I say flattish, it could be slightly up, it may be slightly down but within a smaller range.

And secondly, are you more cautious because of cost of new itineraries with which I imagine they don't have as much historical experience and therefore, there's more risk in terms of yield managing?

Now the response to the Costa itineraries from the market has been actually quite good, so we don't see any issues right now with Costa's itinerary. They feel very good -- they've got some new itineraries that they've put in there this year and they're booking well, so they're very pleased with that.

I think the major change in Costa's deployment is to offer [indiscernible] that are shorter duration, which helps to bring the price point down to a local market, and it's attractive in this kind of economic environment.

Yes. But it's also later booking. The shorter the cruise, the later the booking.

Sure. But could that also be more helpful to onboards as shorter voyages tend to have better onboard?

Absolutely.

Yes, absolutely.

And we'll proceed to our next question, the line of David Leibowitz from Horizon Kinetics.

Briefly, what is the cost of putting on the fuel derivative program?

We did 0 cost collars, there's no cost.

A couple of accounts.

Yes.

And going to the -- from the ridiculous to the sublime, if the euro zone breaks apart and the euro ceases to be a currency, what happens to your euro-denominated debt? Does that go through the German mark or wherever you booked it?

I assume that if that happened, that there would be some sort of conversion pricing that would take effect, and it would be converted at that conversion pricing. But you're asking a real hypothetical question.

David, I've read about 5 different articles on that possibility, and they had 5 different answers. So I don't think anybody knows nor do the Europeans want to think about it because it's going to be -- to have such a staggering impact on their economies if this does happen. So my guess is it's very unlikely to happen except that every once in a while, you pick up the Wall Street Journal or the Financial Times and somebody -- Mario Draghi makes some comment that it's kind of scary. But apart from that, I think it's unlikely to happen. I think the intent is ultimately to save the euro, really.

And Mr. Frank, we do have one more question in the queue. And our last question for today is from the line of Janet Brashear from Sanford C. Bernstein. Janet Brashear - Sanford C. Bernstein & Co., LLC., Research Division: I was just curious about a comment you made earlier about your flexibility to position ships within Europe. How flexible are you sort of in the year for the year if you find some markets are working better than others, given the positioning of each brand towards specific populations?

I'm not sure what you're referring to, but obviously, we showed it last year by moving 300 itineraries with 30-days notice, so we can do it. There is clearly a negative repercussion in cost to it because you wind up losing a lot of the people you have booked and you have to rebook them, and that tends to force you to lower prices. So that's a last resort when the situation is really dire, so it's not something we want -- we would want to do at the last minute. It's something that we clearly can do year-over-year at adjusting to booking patterns and customer taste, and that's what Costa did and a number of our brands did. We tweaked the itineraries, increased capacity a little bit in Alaska, increased capacity a little bit in northern Europe, held capacity in the Mediterranean. So we tweak this from year-to-year, but close in, only in a dramatic situation would we move like that.

And Mr. Frank, we have no further questions on the phone line. I'll now turn the call back to you for any closing remarks.

Okay. Well, thank you, all. We all here wish you a happy holidays and a happy and healthy new year, and hope to see you in the new year. All the best to everybody. Bye-bye.

Thank you very much. And ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day, everyone.