Carnival Cruises 2011 Annual Report Download - page 40

Brent call options and sold Brent put options, collectively referred to as zero cost collars that established ceiling
and floor Brent prices. We believe that these derivatives will act as economic hedges, however hedge accounting
is not applied. Accordingly, the impact of any realized gains and losses on fuel derivatives that mature during
each period, as well as changes in unrealized gains and losses resulting from fair value adjustments on our
outstanding derivatives, are recorded as a nonoperating item in the Consolidated Statements of Income. At
November 30, 2011, we had fuel derivatives for approximately 10% of our estimated fuel consumption for the
second half of fiscal 2012 through fiscal 2015. In 2011, we recognized $1 million of unrealized gains on fuel
derivatives. See “Note 10 – Fair Value Measurements, Derivative Instruments and Hedging Activities” in the
accompanying consolidated financial statements for additional discussion of our fuel derivatives program.
We continue to build new and innovative ships and to invest in our existing ships to strengthen the leadership
position of each of our brands. During 2011, we ordered four new cruise ships – one 132,500-ton vessel for our
Costa brand, one 141,000-ton vessel for our P&O Cruises (UK) brand and two 125,000-ton ships for our AIDA
brand. These ships will be the largest ever constructed for these three cruise lines. As of January 23, 2012,
including these four orders, we currently have ten cruise ships scheduled to enter service between May 2012 and
March 2016, three of which will enter service in 2012 (see “Note 6 – Commitments” in the accompanying
consolidated financial statements). Our current intention is to have an average of two to three new cruise ships
enter service annually, some of which will replace existing capacity from possible sales of older ships. Since we
have slowed down the pace of our newbuilding program, we currently believe this will lead to an increase in free
cash flows.
The year-over-year percentage increase in our capacity for fiscal 2012, 2013, 2014 and 2015 is currently expected to
be 3.4%, 2.8%, 2.4% and 4.5%, respectively. These percentage increases result primarily from contracted new ships
entering service and include the scheduled withdrawal from service of P&O Cruises (Australia’s) Pacific Sun in
July 2012 and withdrawal from service of Costa Concordia for all years (see “Note 15 – Subsequent Events” in the
accompanying consolidated financial statements), but exclude any unannounced future ship orders, acquisitions,
retirements, charters or sales.
Outlook for Fiscal 2012
On December 20, 2011, we said that we expected our non-GAAP fully diluted earnings per share for the 2012
first quarter and full year would be in the ranges of $0.06 to $0.10 and $2.55 to $2.85, respectively. Our guidance
was based on the fuel and currency assumptions noted in the “2012 Selected Key Forecast Assumptions—
December 20, 2011” table below.
On January 13, 2012, Costa Concordia grounded off the coast of Isola del Giglio, Italy and sustained significant
damage. The ship remains grounded and partially submerged off the coast. The cause of the accident is currently
under investigation by the Italian authorities. The net carrying value of this euro-denominated ship, including
ship improvements, at December 31, 2011 was $490 million (at the December 31, 2011 exchange rate or €379
million). We have euro-denominated insurance coverage of $510 million (at the December 31, 2011 exchange
rate or €395 million) for damage to the ship with a potential deductible of approximately $30 million as well as
insurance for third party personal injury liability subject to an additional deductible of approximately $10 million
for this incident.
A damage assessment review of the ship is being undertaken to determine whether the ship can be repaired and
what the total cost would be. If the ship is repairable, it is expected to be out-of-service for the remainder of
fiscal 2012 if not longer. We self-insure for loss of use of the ship, which we expect to impact the 2012 full year
net income by approximately $85 million to $95 million. Furthermore, we anticipate approximately $30 million
to $40 million of other incident related costs.
After the incident, we significantly reduced our marketing activities. Excluding Costa, our fleetwide booking
volumes, subsequent to the incident through January 25, 2012, declined in the mid-teens compared to the prior
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