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Case 1:11-cv-22855-KMW Document 46 Entered on FLSD Docket 02/17/2012 of 106

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

In re ROYAL CARIBBEAN CRUISES LTD. ) Case No. 11-cv-22855-WILLIAMS SECURITIES LITIGATION )

JURY TRIAL DEMANDED

CONSOLIDATED CLASS ACTION COMPLAINT


By and through their undersigned counsel, Lead Plaintiffs No. 9, I.A. of M& A.W. Pension

Trust and United Association Local Union Officers & Employees Pension Fund (the “Pension and

Trust Funds”) and KBC Asset Management NV (“KBC”) (“Lead Plaintiffs” or “Plaintiffs”) allege

the following against Defendants Royal Caribbean Cruises Ltd. (“Royal Caribbean” or the

“Company”), Richard D. Fain (“Fain”), Brian J. Rice (“Rice”), Adam M. Goldstein (“Goldstein”),

and Daniel J. Hanrahan (“Hanrahan”) (collectively, “Defendants”), upon personal knowledge as to

those allegations concerning Plaintiffs and, as to all other matters, upon the investigation of counsel,

which included, without limitation: (a) review and analysis of public filings made by Royal

Caribbean and other related parties and non-parties with the Securities and Exchange Commission

(“SEC”); (b) review and analysis of press releases and other publications disseminated by certain of

the Defendants and other related non-parties; (c) review of news articles and shareholder

communications; (d) review of other publicly available information concerning Royal Caribbean, the

other Defendants, and related non-parties; (e) consultation with experts; and (f) interviews with

factual sources, including individuals formerly employed by Royal Caribbean and other industry

participants.

I. SUMMARY OF THE ACTION

1. This is a federal securities class action against Royal Caribbean and certain of its

officers and/or directors for violations of the federal securities laws. Plaintiffs bring this action on

behalf of themselves and the Class under the Securities Exchange Act of 1934 (the “Exchange Act”).

Plaintiffs allege that between October 26, 2010 and July 27, 2011, inclusive (the “Class Period”),

Defendants engaged in a fraudulent scheme to artificially inflate the Company’s stock price by

concealing from the market its lagging demand, bookings, and pricing softness for European and

Mediterranean cruise itineraries and by issuing inflated guidance for 2011 that was unattainable at

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the time it was made. As a result of the fraud described below, shareholders suffered millions of

dollars in losses.

2. Royal Caribbean is the world’s second largest cruise company and operates 40 ships

under five cruise brands, with a selection of worldwide itineraries. Beginning at the end of 2009, the

Company ramped up efforts to grow business in Europe. As part of this strategy, the Company

moved ships out of the United States for European itineraries, including Mediterranean sailings. By

2011, the Company had deployed approximately 11 ships to Europe, including many larger vessels.

3. As a result of this strategy, the Company had too much “hardware” in Europe, and as

soon as Royal Caribbean began selling 2011 cruises for Europe and the Mediterranean, it was

experiencing difficulty booking them. Even before August 2010, the Company was “behind the

eight ball” for the European cruises and not on track to meet internal expectations for both pricing

and inventory.

4. Defendants knew from their receipt of reports, attendance at revenue review

meetings, and otherwise intimate involvement with the Company’s booking and pricing data, that

Royal Caribbean’s bookings for European cruises were lagging and that the Company was

experiencing significant pricing softness on the cruises. Despite this, Defendants repeatedly touted

the strength of Royal Caribbean’s European itineraries and their expectations for the Company’s

performance in 2011.

5. In particular, on October 26, 2010, despite being fully informed of the booking and

pricing problems the Company was facing for 2011 European cruises, Defendants announced that

Royal Caribbean expected “2011 EPS to exceed its previous record of $3.26 per share.” Just after

Defendants falsely touted Royal Caribbean’s prospects for 2011 to the market, thereby artificially

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inflating the Company’s stock price, Defendants Fain, Goldstein, and Hanrahan unloaded significant

quantities of stock for more than $14.4 million in proceeds.

6. Royal Caribbean continued to experience significant problems with bookings and

pricing softness through January 2011 and was not on track to meet internal expectations for 2011.

Despite this, on January 27, 2011 Defendants issued record annual guidance for 2011 and falsely

touted the Company’s performance, particularly in Europe. Royal Caribbean’s guidance, which was

unreasonable when made, along with Defendants’ rosy statements, artificially inflated the

Company’s stock price. Taking full advantage of this artificial inflation, Defendants then sold

massive quantities of stock for combined proceeds of $14.8 million. In fact, on January 28, 2011 -

the day after the Company issued its 2011 annual guidance - Defendant Fain alone sold 200,000

shares for proceeds of $9,326,000.

7. Defendants’ lagging bookings and pricing softness for European cruises failed to

improve throughout early Spring 2011, especially as political turmoil, which began in 2010,

continued to ensue in Greece, Egypt, and other countries near the Company’s European cruise

itineraries. While the Company reduced its guidance in April 2011, it falsely assured the market that

(i) it was effectively managing these “geopolitical events,” (ii) the Company was experiencing

strong bookings, and (iii) 2011 was expected to be a great year for the Company. In reality, the

Company’s guidance was unattainable when made and its failure to reduce guidance further in April

was unreasonable at that time based on then-known facts.

8. Three months later, on July 27, 2011, Defendants could no longer conceal the impact

that lagging bookings and pricing softness were having on the Company’s bottom line and were

forced to reveal to the market that, as a result, Royal Caribbean again had to reduce its 2011 annual

guidance. Analysts were dismayed by this news. As Defendants’ announcements and resulting

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analyst commentary made their way into the market, Royal Caribbean’s stock price plummeted by

approximately 19%, falling from a close of $35.76 per share on July 27, 2011 to close of $28.83 on

August 2, 2011, causing millions in investor losses.

II. JURISDICTION AND VENUE

9. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the

Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder by the SEC,

17 C.F.R. §240.10b-5. This Court has jurisdiction over the subject matter of this action pursuant to

28 U.S.C. §1331 and Section 27 of the Exchange Act, 15 U.S.C. §78aa.

10. Venue is proper in this District pursuant to Section 27 of the Exchange Act (15

U.S.C. §78aa), and 28 U.S.C. §1391(b). Royal Caribbean maintains its principal place of business in

this District. Many of the false and misleading statements were made in or issued from this District,

and many of the acts and transactions giving rise to the violations of law complained of occurred in

this District.

11. In connection with the challenged conduct, Defendants, directly or indirectly, used

the means and instrumentalities of interstate commerce, including, but not limited to, the United

States mails, interstate telephone communications, and the facilities of the national securities

markets.

III. PARTIES

A. Plaintiffs

12. Plaintiff District No. 9, I.A. of M. & A.W. Pension Trust was appointed to serve as

Lead Plaintiff in this action by Order of this Court dated January 5, 2012 [Dkt. No. 45]. Plaintiff

purchased Royal Caribbean securities at artificially inflated prices during the Class Period and

suffered an economic loss when the true facts about the Company’s business and financial condition

were disclosed and the stock price resultantly declined.

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13. Plaintiff United Association Local Union Officers & Employees Pension Fund was

appointed to serve as Lead Plaintiff in this action by Order of this Court dated January 5, 2012 [Dkt.

No. 45]. Plaintiff purchased Royal Caribbean securities at artificially inflated prices during the Class

Period and suffered an economic loss when the true facts about the Company’s business and

financial condition were disclosed and the stock price resultantly declined.

14. Plaintiff KBC was appointed to serve as Lead Plaintiff in this action by Order of this

Court dated January 5, 2012 [Dkt. No. 45]. Plaintiff purchased Royal Caribbean securities at

artificially inflated prices during the Class Period and suffered an economic loss when the true facts

about the Company’s business and financial condition were disclosed and the stock price resultantly

declined.

B. Defendants

15. Defendant Royal Caribbean is a corporation organized under the laws of the Republic

of Liberia, which maintains its principal place of business at 1050 Caribbean Way, Miami, Florida

33132-2096. According to the Company’s website, Royal Caribbean is the world’s second largest

cruise company, operating 40 ships with an aggregate passenger capacity of approximately 92,300.

The Company’s cruise brands include: Royal Caribbean International, Celebrity Cruises, Azamara

Club Cruises, Pullmantur, and CDF Croisières de France. The Company also has a 50% joint

venture with TUI Cruises. The ships operate worldwide with a selection of itineraries that call on

approximately 400 destinations.

16. Defendant Fain is, and during the Class Period was, Chief Executive Officer and

Director, as well as Chairman of the Company’s Board of Directors. Throughout the Class Period,

Defendant Fain signed and certified the Company’s Forms 10-Q and 10-K. In addition, during the

Class Period, Defendant Fain sold 500,000 shares of his personally held securities of the Company,

to reap illicit gross proceeds of $21,672,500.


17. Defendant Rice is, and during the Class Period was, Chief Financial Officer and

Executive Vice President of the Company. Throughout the Class Period, Defendant Rice signed

and certified the Company’s Forms 10-Q and 10-K. In addition, during the Class Period, Defendant

Rice sold 76,930 shares of his personally held securities of the Company, to reap illicit gross

proceeds of $3,604,762.

18. Defendant Goldstein is, and during the Class Period was, the President and Chief

Executive Officer of Royal Caribbean International (“RCI”), a cruise brand owned by the Company.

During the Class Period, Defendant Goldstein sold 54,090 shares of his personally held securities of

the Company, to reap illicit gross proceeds of $2,312,856.

19. Defendant Hanrahan is, and during the Class Period was, the President and Chief

Executive Officer of Celebrity Cruises, a cruise brand owned by the Company. During the Class

Period, Defendant Hanrahan sold 38,956 shares of his personally held securities of the Company, to

reap illicit gross proceeds of $1,666,195.

20. Defendants Fain, Rice, Goldstein and Hanrahan are collectively referred to herein as

the “Individual Defendants.”

21. During the Class Period, the Individual Defendants, as senior executive officers of the

Company, were privy to confidential and proprietary information concerning Royal Caribbean, its

operations, finances, financial condition, and present and future business prospects. The Individual

Defendants also had access to material adverse non-public information concerning Royal Caribbean,

as discussed in detail below. Because of their positions with Royal Caribbean, the Individual

Defendants had access to non-public information about Royal Caribbean’s business, finances,

products, markets, and present and future business prospects via access to internal corporate

documents, conversations and connections with other corporate officers and employees, attendance

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at management and/or board of directors meetings and committees thereof, and via reports and other

information provided to them in connection therewith. Because of their possession of such

information, the Individual Defendants knew or recklessly disregarded that the adverse facts

specified herein had not been disclosed to, and were being concealed from, the investing public.

22. The Individual Defendants are liable as direct participants in the wrongs complained

of herein. In addition, the Individual Defendants, by reason of their status as senior executive

officers, were “controlling persons” within the meaning of Section 20(a) of the Exchange Act and

had the power and influence to cause the Company to engage in the unlawful conduct complained of

herein. Because of their positions of control, the Individual Defendants were able to, and did,

directly or indirectly, control the conduct of Royal Caribbean’s business.

23. The Individual Defendants participated in the drafting, preparation, and/or approval

of the various public and shareholder and investor reports and other communications complained of

herein and were aware of, or recklessly disregarded, the misstatements contained therein and

omissions therefrom, and were aware of their materially false and misleading nature. Because of

their executive and managerial positions with Royal Caribbean, each of the Individual Defendants

had access to the adverse undisclosed information about Royal Caribbean’s business prospects,

financial condition, and performance as particularized herein, and knew or recklessly disregarded

that these adverse facts rendered the positive representations made by or about Royal Caribbean and

its business issued or adopted by the Company materially false and misleading.

24. The Individual Defendants, because of their positions of control and authority as

officers of the Company, were able to, and did, control the content of the various SEC filings, press

releases, and other public statements pertaining to the Company during the Class Period. Each

Individual Defendant was provided with copies of the documents alleged herein to be misleading

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prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent their

issuance or cause them to be corrected. Accordingly, the Individual Defendants are responsible for

the accuracy of the public reports and releases detailed herein and are therefore primarily liable for

the representations contained therein.

25. It is appropriate to treat the Individual Defendants as a group for pleading purposes

and to presume that the false, misleading, and incomplete information conveyed in the Company’s

public filings, press releases, and other publications as alleged herein are the collective actions of the

narrowly defined group of Defendants identified above. Each of the above officers of Royal

Caribbean, by virtue of his or her high-level position with the Company, directly participated in the

management of the Company, was directly involved in the day-to-day operations of the Company at

the highest levels, and was privy to confidential proprietary information concerning the Company

and its business, operations, growth, financial statements, and financial condition, as alleged herein.

The Individual Defendants were involved in drafting, producing, reviewing, and/or disseminating the

false and misleading statements and information alleged herein, were aware, or recklessly

disregarded, that the false and misleading statements were being issued regarding the Company, and

approved or ratified these statements in violation of the federal securities laws.

26. As senior executive officers and as controlling persons of a publicly traded company

whose common stock was, and is, registered with the SEC pursuant to the Exchange Act and was,

and is, traded on the New York Stock Exchange (“NYSE”) and governed by the federal securities

laws, the Individual Defendants had a duty to promptly disseminate accurate and truthful

information with respect to Royal Caribbean’s financial condition and performance, growth,

operations, financial statements, business, products, markets, management, earnings, present and

future business prospects, and to correct any previously issued statements that had become

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materially misleading or untrue so that the market price of Royal Caribbean’s securities would be

based upon truthful and accurate information. The Individual Defendants’ misrepresentations and

omissions during the Class Period violated these specific requirements and obligations.

27. The Individual Defendants are liable as participants in a fraudulent scheme and

course of conduct that operated as a fraud or deceit on purchasers of Royal Caribbean’s publicly

traded securities by disseminating materially false and misleading statements and/or concealing

material adverse facts. The scheme deceived the investing public regarding Royal Caribbean’s

business, operations, management, and the intrinsic value of Royal Caribbean’s common stock and

caused Plaintiff and other members of the Class to purchase Royal Caribbean common stock at

artificially inflated prices.

28. Defendants are liable for: (i) making false statements; and/or (ii) failing to disclose

adverse facts known to them about Royal Caribbean. Defendants’ fraudulent scheme and course of

business that operated as a fraud or deceit on purchasers of Royal Caribbean common stock was a

success, as it: (i) deceived the investing public regarding Royal Caribbean’s prospects and business;

(ii) artificially inflated the price of Royal Caribbean’s common stock; and (iii) caused Plaintiff and

other members of the Class to purchase Royal Caribbean’s common stock at inflated prices.

IV. SUBSTANTIVE ALLEGATIONS 1

A. Background of the Company

29. Royal Caribbean was founded in 1968 and holds itself out as the world’s second

largest cruise company. Royal Caribbean is incorporated in the Republic of Liberia and

headquartered in Miami, Florida. As of December 31, 2010, the Company operated 40 ships under

1 All confidential witnesses are referred to in the masculine to protect their identities.

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five cruise brands, with a selection of worldwide itineraries ranging from 2 to 18 nights that call on

approximately 420 destinations and an aggregate of approximately 92,300 berths. See Royal

Caribbean’s 2010 Form 10-K for the period ending December 31, 2010, filed with the SEC on

February 24, 2011. Royal Caribbean’s cruise brands include: Royal Caribbean International,

Celebrity Cruises, Azamara Club Cruises, Pullmantur, and CDF Croisières de France. Id. The

Company also has a 50% investment in a joint venture which operates the brand TUI Cruises,

specifically tailored for the German market. Id.

1. Royal Caribbean’s Sales Structure

30. Royal Caribbean derives its revenues from two primary sources: passenger ticket

revenues and onboard and other revenues. See Royal Caribbean’s 2010 Form 10-K for the period

ending December 31, 2010, filed with the SEC on February 24, 2011. “Passenger ticket revenues”

are earned from the sale of passenger tickets and air transportation to and from the Company’s ships.

Id. The Company’s “onboard and other revenues” consist primarily of revenues from the sale of

goods and/or services onboard its ships that are not included in passenger tickets. Id.

31. The Company’s sales are made through external travel agent partners and an internal

direct consumer sales organization. According to the former Business Development Specialist 2, an

estimated 85 percent of “sales” were made by the Company’s external travel agent “partners.”

Indeed, sales made by the Company’s travel agent “partners” were often larger scale bookings,

whereas the “inside sales” represented smaller sales but at a larger volume.

2 The former Business Development Specialist was employed with the Company in Miami, Florida for a little over a year and left the Company in August 2010. In this capacity, he was responsible for inside sales for three Royal Caribbean divisions: Royal Caribbean, Celebrity Cruises, and Azamara Cruises.

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32. Likewise, the former Chicago District Sales Manager 3 explained that the travel agents

represented the largest source of revenue for Royal Caribbean. The Company had an “inside” sales

team, but the inside sales personnel acted more as support personnel for him and the other sales

representatives who called on travel agents. Royal Caribbean “partnered” with “hundreds of

thousands” of travel agents. The Company had a policy centered on “no agent left behind,” so that

the former Chicago District Sales Manager and the other sales representative called on all travel

agents who “legitimately sold travel” and any agent who had an International Airlines Travel Agent

Network certification or other professional travel agent designation.

33. The Company’s internal direct consumer sales organization was located at its Miami,

Florida headquarters. According to the former Sales Coach, 4 there were an estimated 210 employees

who worked at the call center, including Direct Consumer Sales Agents, who were responsible for

selling cruises to consumers over the phone, and Customer Service Representatives.

3 The former Chicago District Sales Manager was employed with the Company from 2002 until April 13, 2010. In this capacity, he was responsible for calling on travel agents in the Chicago, Illinois area who sold Royal Caribbean products, including Royal Caribbean, Celebrity, and Azamara cruise products. The former Chicago District Sales Manager was one of about 14 District Managers in the Midwest Region and reported to Regional Director.

4 The former Sales Coach was employed with Royal Caribbean from October 28, 2002 through October 20, 2010. In this capacity, the former Sales Coach was responsible for overseeing a team of roughly 30 Sales Agents and working with that team to attain assigned sales goals.

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B. The Company’s Focus on Deployment and Revenue Management

1. Royal Caribbean’s Deployment Planning Process

34. The former Strategic Deployment Senior Analyst 5 explained that planning for the

deployment of ships occurred nearly two years before the deployment occurred. For instance, the

Company began planning for the deployment of ships scheduled to sail in 2011 between August and

October 2009. Deployment was planned for the “summer season” from May to October for ships in

Europe and Alaska and for the “winter season” from November to April in the Caribbean and

Australia. Not all of the ships in the fleet were evaluated each year for deployment. That is, an

estimated two-thirds of the fleet was “already spoken for” and Royal Caribbean did not have

intentions of moving these ships from their locations and itineraries from the previous year.

Accordingly, only an estimated one-third of the fleet was evaluated for deployment in a given year.

35. The former Strategic Deployment Senior Analyst further explained that the planning

for the deployment of ships entailed an “iterative” process involving the Strategic Deployment

Analysts and Revenue Management Analysts. While the Strategic Deployment Analysts “forecasted

itineraries, including the length and location” of cruises, the Revenue Management Analysts

provided historical ticketing data to the Strategic Deployment Analysts for use in “forecasting.” For

instance, the Revenue Management Analysts provided data regarding the amount of money a cruise

of a particular length, in a specific location, typically made based on historical performance data

5 The former Strategic Deployment Senior Analyst was employed with the Company from October 28, 1999, to August 5, 2011. During his employment with the Company, he held a number of positions with Royal Caribbean. In April 2007, he became an Analyst with the Strategic Deployment Group and was promoted to Senior Analyst a year and a half later. He reported to Marc Miller (Strategic Deployment Manager), who in turn reported to Christopher Allen (Director of Strategic Employment), who reported to Diana Block (“Block”), the Assistant Vice President of Revenue Management. In these roles he was responsible for financial analyses, profitability evaluations, and deployment analyses.

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tracked and managed in the Brio information system. 6 Then, based on data provided by the Revenue

Managements Analysts, the former Strategic Deployment Senior Analyst and his colleagues

evaluated revenue, costs, and other factors ( i.e. , number of docks available) in determining “where to

put the ships.”

36. In making deployment decisions, the former Strategic Deployment Senior Analyst

and his colleagues evaluated historical data and what “other ships” – including other Royal

Caribbean ships and competitor ships – “were doing.” The former Strategic Deployment Senior

Analyst also “looked at what a smaller ship might do or what a larger ship might do in a particular

location, and whether there were new players or players leaving” a particular region. As part of the

deployment process, regular meetings were held as often as every one to two weeks to discuss

deployment options for Royal Caribbean and Celebrity Cruises. According to the former Strategic

Deployment Senior Analyst, while Defendants Goldstein and Hanrahan typically made the decisions

on deployment, Defendant Fain was consulted on “big moves.”

2. Royal Caribbean’s Revenue Planning Process

37. As the former Business Development Manager 7 explained, revenue planning was the

“heart and soul” – the “bread and butter” – of Royal Caribbean. In addition to making deployment

decisions far in advance of sailings, the Company also planned revenue forecasts a year in advance.

Indeed, according to the former Strategic Deployment Senior Analyst, the financial “plan” for each

year was developed by November of the previous year. The financial “plan” was distinct from the

6 “Brio” is a reporting tool used by the Company to track, extract or report on data, including reservation and booking data.

7 The former Business Development Manager was employed with the Company for 19 years until May 2010. In this capacity, this former employee was a District Sales Manager for territory in the western United States.

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deployment plan and detailed the “different money” Royal Caribbean anticipated making from “each

port, each itinerary.” While the Strategic Deployment personnel determined deployment for the

Royal Caribbean and Celebrity Cruises fleets sometime between August and October, the financial

forecasting process began months later based on the deployment arrangements. The “plan” was

typically done by the end of August or September and finalized by November of the following year.

38. According to the former Strategic Deployment Senior Analyst, after the financial

“plan” was developed, it was submitted to the Capital Planning group. The Capital Planning

personnel produced a “nice document using Essbase” that detailed the financial “plan,” which

Defendant Fain ultimately presented to the Board of Directors. According to the former Strategic

Deployment Senior Analyst, the Board of Directors either approved the plan or recommended

adjustments. The Board of Directors approved the “plan” in November. All of the adjustments had

to be made and the “plan” had to be finalized by January 1st. “The plan went into effect in January.”

3. The Company Meticulously Tracked Sales and Revenue Data

39. According to the Company itself, Royal Caribbean has “some of the most advanced

revenue management capabilities in the industry, which enables [it] to make more advantageous

decisions about pricing, inventory management, and marketing actions even during periods of

volatility and contracted booking windows.” Royal Caribbean’s Form 10-K filed on February 24,

2011, for the period ending December 31, 2010. The former Business Development Manager stated

that the Revenue Planning personnel knew “at all times how every single ship was performing.”

Indeed, Royal Caribbean had daily, weekly, and monthly reporting on revenue and Company

employees met frequently on this topic.

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a. The Company Tracked Sales and Revenue on a Constant Basis

40. The former Business Development Specialist stated that Royal Caribbean used an

AS400 information system to track reservations booked by both its “inside sales” team and the

external travel agent “partners.” The former Sales Coach explained that the reservation system

interfaced with Brio and thus sales results “fed into” the Brio system and, as a result, sales from the

prior day were available in Brio each and every day. Additionally, sales reports were available on a

daily basis in the Brio information system.

41. Moreover, according to the former Associate Vice President of Sales, 8 Revenue

Management personnel prepared sales reports on a daily, weekly, and monthly basis. He explained

that the Revenue Management group also included Revenue Planning personnel, who prepared

analyses of actual sales to forecasted sales and that these variance analyses were included in weekly

sales reports.

42. The former Associate Vice President of Sales explained that the sales reports detailed

sales by brand for the Royal Caribbean and Azamara brands, as well as for United States sales made

by the Direct Sales team and by the travel agents. For example, daily reports were prepared that

detailed sales-related data, such as how many calls Royal Caribbean received from prospective

customers and how many calls converted to bookings. The daily reports also “broke down” the

booking data by itinerary.

8 The former Associate Vice President of Sales was employed with Royal Caribbean in Miami, Florida for 13 years until January of 2011, when his position was eliminated. This former employee served in this capacity for four years of his employment with Royal Caribbean. In this capacity, he was responsible for training and working with travel agents and reported to Vicki Freed, the Senior Vice President of Sales Trade Support, who reported to Defendant Goldstein, who reported to Defendant Fain. Prior to serving as Associate Vice President of Sales, he served in the Revenue Management organization of the Company for six years and the Treasury group before that.

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43. The Revenue Management personnel also prepared weekly sales reports that provided

data similar to those in the daily reports. In addition, the weekly sales reports also contained

comparisons of actual sales to forecasted sales. The former Associate Vice President of Sales

explained that the daily and weekly reports were distributed by e-mail to a “huge laundry list” of

recipients, including Defendant Goldstein and the “department heads.”

44. The former Associate Vice President of Sales explained that the Company’s monthly

sales reports entailed comprehensive “revenue reviews” which were distributed at monthly revenue

review meetings in hard copy. The monthly reports were prepared in PowerPoint format and

included sales data detailed by brand for Royal Caribbean and Azamara brands, such as pricing level

data, inventory, and competitive comparisons. “Inventory” referred to the “number of cabins sold”

and was presented in terms of “cabin availability.” Royal Caribbean tracked competitive

comparisons through a “web crawler” that surveyed the performance of competitive cruise

companies, including Carnival Cruises and Princess Cruises. Information developed by the “web

crawler” was used as the basis for commenting on how Royal Caribbean was performing in relation

to the competition with respect to pricing and inventory, which was also included in the monthly

reports.

45. The former Associate Vice President of Sales explained that personnel from the

Revenue Management group prepared sections of the monthly revenue review report by operating

division. The operating divisions included Sales, Marketing, and Internal Sales. As such, the reports

contained details about sales generated by travel agents and by the internal Direct Sales team. The

Revenue Management personnel submitted their respective sections of the monthly revenue review

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report to Diana Block (“Block”), 9 who consolidated the report and prepared it for circulation and

discussion at the monthly revenue review meetings.

46. In addition, according to the former Business Development Manager, actual

performance was detailed in the “one stop list.” The “one stop list” was generated by the Revenue

Planning team and consisted of a 30-page Excel document that detailed the ships, current pricing for

different room types ( i.e., inside state room, outside state room, and suite), and was “color coded

according to availability” of rooms on the ships. The color codes included red, green, and blue. The

red color code 10 represented ships that were “about to sell out or were sold out.” The green color

code designated ships that were “wide open” and had plenty of capacity left to sell. The blue color

code was used to identify ships that were “on track and selling and doing what they should be”

according to internal expectations. There were some ships that “never started out in green” and were

“always in blue,” including ships in Alaska and cruises deployed for New Years, Spring Break, and

Christmas. As detailed further below, there were also ships that lingered in the green color code for

some time and were obviously not “on track” with internal projections or expectations. The “one

stop list” was updated weekly each Tuesday.

47. The “one stop list” contained “two letter codes” by which each of the ships was

identified. For instance, the Adventurer of the Seas was identified as AD; the Oasis of the Seas as

OA; the Enchantment of the Seas as EN; the Allure of the Seas as AL; the Navigator of the Seas as

9 Block was the Vice President of Revenue Management and was responsible for Revenue Management for the Royal Caribbean brand. She also oversaw planning for both the Royal Caribbean and Celebrity Cruise Brands until late in calendar 2010.

10 According to the former Business Development Manager, the red color code was removed from the “one stop list” in approximately 2009 and ships that were “about to sell out” or were sold out were simply not included in the “one stop list.”

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NS; and, the Voyager of the Seas as VY. The list of ships was alphabetized, beginning with the

Adventurer and ending with the Voyager. The “one stop list” also provided details about how many

nights the ships were scheduled to sail, “lead” pricing for the ships at the time the report was

produced, the above-mentioned color code, and particular promotions associated with each ship,

such as “senior specials” or “wow” sales.

48. The Revenue Planning personnel utilized prior year and prior week sales data from

the “one stop list” to make decisions about pricing adjustments and closing sailings. The Sales

personnel, including the former Business Development Manager, and the outside travel agents had

access to the “one stop list” through the Royal Caribbean Intranet.

b. The Company Held Frequent Meetings to Discuss and Analyze Revenue

49. In addition to daily access to sales data, the former Cruisetours Sales and Marketing

Manager 11 explained that the Company also held weekly meetings to discuss financial performance

data in relation to internal expectations at the ship level. The former Cruisetours Sales and

Marketing Manager stated that there were an estimated 25 to 30 employees who attended these

meetings. In addition to the former Cruisetours Sales and Marketing Manager, other attendees at the

meetings included the Vice President of Revenue Management Block, the Senior Vice President of

Marketing, the Senior Vice President of Sales, the Lead Revenue Analyst, International Marketing

Representatives, as well as other Managers, Account Executives, and Senior Revenue Analysts.

50. These weekly meetings were confirmed by the Vacation Planning Sales Manager.

According to the former employee, members of Block’s Revenue Management team prepared a

11 The former Cruisetours Sales and Marketing Manager was employed with the Company from December 16, 2002, to April 29, 2011. In this capacity, he managed a marketing budget of $3.15 million focused mainly on advertising in the United States for cruisetours in Alaska.

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report for the weekly meetings, distributed in hard copy. The report was presented in Excel format

and included details about “targets, how far away from the target” Royal Caribbean was for each

ship and other “product” details.

51. The former Cruisetours Sales and Marketing Manager explained that discussions at

the weekly revenue management meetings centered on the “report for the previous week.” The

“report for the previous week” was the “rev up” report that was generated by the revenue

management team and reviewed by the Lead Revenue Analyst during the weekly meetings. While

attendees at the meetings were not provided with copies of the “rev up” report, the former

Cruisetours Sales and Marketing Manager understood through attendance at the meetings and

discussions with the other attendees that a “weekly email summary” of the “rev up” report was sent

to “senior executives.” Block reviewed and discussed details from Excel spreadsheets at the weekly

meetings.

52. According to the former Cruisetours Sales and Marketing Manager, the weekly

revenue management meetings centered on “how Royal Caribbean did over the last week.” As

detailed further below, the presentations at the meetings identified the “ships most in need” of

concerted efforts to increase bookings in order to attain internal expectations, areas where pricing

softness was an issue, and specific promotions that were designed to improve booking rates. The

attendees discussed “specific ships that were not moving” ( i.e. , bookings were not being made in

accordance with internal expectations), the number of cabins left on specific ships, and other details

of financial performance and related metrics.

53. The Company also held monthly revenue review meetings. According to the former

Associate Vice President of Sales, these meetings were held in board rooms and conference rooms at

one of the two office buildings at the Miami, Florida headquarters. Defendants Rice, Goldstein and

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Hanrahan attended the monthly revenue review meetings as did Director-level employees and their

superiors.

4. The Company Frequently Adjusted Pricing and Inventory Forecasts

54. Through the Company’s meticulous monitoring of sales, it was constantly analyzing

the performance of its ships to its internal forecasts. As the former Strategic Deployment Senior

Analyst explained, Royal Caribbean closely monitored the actual performance of ships against the

“track” or “curve.” That is, Royal Caribbean established a “track” or forecast regarding what

percentage a ship should be booked at and at what price the bookings should be made at milestones

leading up to the sail date. For example, the forecast dictated that a cruise should be 50 percent

booked by six months prior to the sail date and that those bookings should be made at a particular

price.

55. The former Associate Vice President of Sales explained how forecasts for sailings

were developed “bottom up.” The Revenue Management personnel assigned to ships and regions

determined the pricing per cabin that formed the basis of revenue forecasts. For example, the

forecast for one ship might have been based on $1000 per cabin for a certain amount of nights the

ships was scheduled to sail. The forecasted price per cabin was then multiplied by the amount of

sailings the ship was scheduled to take during the planning timeframe. The forecasts for each ship

were then rolled up into a revenue forecast prepared by members of Block’s team.

56. According to the former Strategic Deployment Senior Analyst, the Decision Support

personnel used the Brio information system to monitor and track booking and pricing data. The

Revenue Management personnel made recommendations about pricing based on the data in the Brio

information system. There were weekly reports, daily reports, and countless updates about which

20


ships were performing below “track.” Performance to “track” data was “all over the place there [ i.e. ,

at Royal Caribbean].”

57. According to the former Associate Vice President of Sales, Royal Caribbean adjusted

pricing and inventory forecasts on a regular basis based on actual sales data. Pricing adjustments

were made on a daily basis, and the forecasts were changed as frequently as monthly by Revenue

Management personnel. For instance, when the Company was not on track to attain internal

inventory expectations, pricing was adjusted downward to increase bookings. As the number of

bookings increased, pricing was adjusted upward to increase profit. There was a “vicious circle” of

adjustments to the pricing and inventory forecasts as a result.

58. Likewise, according to the former Celebrity Cruises District Sales Manager, 12

revenue and underlying pricing and booking forecasts were reviewed and managed on an ongoing

“daily” basis by the Celebrity Cruises revenue management team, which was distinct from the Royal

Caribbean revenue management team. Pricing adjustments were made regularly in an attempt to

control booking numbers. The Revenue Analysts used “actuarial models” to forecast pricing and

bookings and to make pricing adjustments. Forecasting for each calendar year began in

October/November. Royal Caribbean “started loading goals before the end of the year,” meaning

that the forecasts were typically finalized and sales goals were distributed to the sales team before

the end of the calendar year.

12 The former Celebrity Cruises District Sales Manager was employed with the Company from September 2004 through September 2011. In this capacity, he was responsible for working with an assigned travel agent “partner” network in an assigned territory to sell Celebrity cruise products.

21


C. Royal Caribbean Tries to Increase Market Share in Europe

59. Beginning at the end of 2009, the Company ramped up efforts to grow business in

Europe. The former Associate Vice President of Sales explained that Royal Caribbean increased its

focus on “international deployment” in order to try to “grow” business in Europe. Indeed, the

former Strategic Deployment Senior Analyst explained that over the course of approximately the last

five years of the former Strategic Deployment Senior Analyst’s employment with Royal Caribbean,

Royal Caribbean was pursuing a strategy to derive 50% of all guests from locations other than the

United States. In order to achieve this goal, Royal Caribbean had to “move more assets out of the

United States,” including to locations such as Europe and the Eastern Mediterranean region. The

former Cruisetours Sales and Marketing Manager explained that the Eastern Mediterranean sailings

were a subcategory of European cruises with departures and destinations including Italy, Greece,

North Africa, Egypt, Dubai, and Turkey, among other locations. Indeed, some of the common

Eastern Mediterranean cruise departure locations included Venice, Barcelona, and Rome. Likewise,

the former Certified Vacation Planner 213 explained that the Eastern Mediterranean region was

encompassed in the Europe region.

60. The former Associate Vice President of Sales explained that there was a general

sentiment at the Company that “people overseas would pay more” for a cruise than United States

citizens. Accordingly, Royal Caribbean sought to “build a higher price per person and make more

money” by increasing the number of international deployments during the Class Period. As the

former Strategic Deployment Senior Analyst explained, in approximately 2007, Michael Bailey

13 The former Certified Vacation Planner 2 was employed with Royal Caribbean from August 2009 until September 22, 2011. In this capacity, he was responsible for making calls to potential customers based on leads generated by potential guests’ visits to the Company website or from calls guests made to Royal Caribbean directly.

22


(“Bailey”), the Vice President of Operations for the Royal Caribbean brand, was put in charge of

creating a more “international footprint” for the Royal Caribbean brand. Bailey established offices

in Barcelona, Spain, France, as well as a “more elaborate” office in the United Kingdom that

included Operations staff.

61. To this end, the former Strategic Development Senior Analyst explained that Royal

Caribbean retained A. T. Kearney 14 as a consultant sometime around late 2009 or early 2010 to

provide strategic advice for the 2011 sailing season. In particular, A. T. Kearney was retained to

advise Royal Caribbean on strategies to increase the “per diem” revenues ( i.e. , revenue per guest per

day). A. T. Kearney was retained because Royal Caribbean was “lagging behind” international

cruise lines and competitors in terms of “per diem” revenues. The consultants were tasked with

closing that gap. Bailey led the consultancy with A. T. Kearney.

62. The recommendations offered by the A.T. Kearney consultants were aimed at

increasing revenues from Europe. As the former Strategic Deployment Senior Analyst recalled, the

A. T. Kearney consultants advised Royal Caribbean to “spend a bunch of money on marketing” by

pursuing a “huge media blitz in Europe.” In addition, they recommended that Royal Caribbean “step

up interporting.” “Interporting” was a practice whereby guests on a cruise boarded from different

ports. For instance, 75% of guests might board a cruise in Rome, while another 15% might board

the same cruise during a stop in Naples, and other guests might board from other locations.

According to the former Strategic Deployment Senior Analyst, “interporting” made the cruise stops

more akin to “city bus stops” than traditional cruise ports. Competitor European cruise lines were

14 A. T. Kearney is a global management consulting firm that uses strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results. http://www.atkearney.com/index.php/About-us/quick-look.html (last visited Feb. 16., 2011).

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more heavily invested in the practice of “interporting” than Royal Caribbean had been and were

purportedly able to reach “a larger market” through the ‘interporting’” tactic. While previously

Royal Caribbean had started to do some “interporting” on an estimated two or three ships, the A. T.

Kearney consultants recommended that Royal Caribbean “step up interporting” to “six, seven, or

eight” ships. In particular, the A. T. Kearney Consultants recommended that Royal Caribbean move

more ships to Europe and also to “the Med” to “support the increase in interporting.”

63. According to the former Strategic Deployment Senior Analyst, although the A. T.

Kearney consultants were “brought in” sometime after the November 1, 2009 deadline by which

Royal Caribbean had finalized requests to port with Barcelona and “[a] lot of things were set, and

decisions made” for deployment for 2011, the A. T. Kearney Consultants made recommendations

that ultimately increased the number of ships deployed in the Eastern Mediterranean region.

1. Royal Caribbean Increases the Deployment of Ships to Europe and the Mediterranean Region

64. The former Strategic Deployment Senior Analyst disclosed that, based on

recommendations from the A. T. Kearney consultants, Royal Caribbean deployed a number of ships

in the Mediterranean for the 2011 sailing season, which ultimately contributed to the pricing softness

Royal Caribbean experienced in the region. This former employee explained that the combination of

Royal Caribbean and Celebrity Cruises ships deployed in the Eastern Mediterranean region during

2011 was “pretty extensive.” “The Med had been going well – making money” prior to 2011. As

such, Royal Caribbean planned accordingly to continue deploying ships in the Mediterranean region,

including in the Eastern Mediterranean region.

65. However, the former Strategic Deployment Senior Analyst stated that, rather than

following a “methodological approach” and only incrementally increasing the number of ships

deployed in the Mediterranean, there was a significant “bump” in the number of ships Royal

24


Caribbean deployed to the region in 2011. The Company moved a “very large percentage of the

fleet” to the Mediterranean region. Royal Caribbean was ultimately “more aggressive” than the

Company wanted or needed to be in the deployment of ships to the Mediterranean region, in part

because the Company followed advice provided by Consultants from A. T. Kearney. The former

Strategic Deployment Senior Analyst stated that “going all in on the Med was a risky move.” There

was “too much capacity in the Med.” The excess capacity resulting from the decision by Royal

Caribbean to put “all ships in the Med” ultimately led to saturation and pricing softness for sailings

in the region.

66. Indeed, the former Cruisetours Sales and Marketing Manager explained that Royal

Caribbean had approximately 11 ships in Europe in 2011. This was confirmed by the former

Associate Vice President of Sales who explained that by 2011, Royal Caribbean had an estimated 10

or 11 vessels assigned to European deployment, including cruises in Spain, the Mediterranean

region, and those leaving from locations in the United Kingdom, among others.

67. In addition to the significant number of ships deployed to Europe and the

Mediterranean in 2011, the former Chicago District Sales Manager explained that the ships Royal

Caribbean deployed to this region beginning in 2010 were bigger ships. According to this former

employee, the key factor to analyze in determining how the ships assigned to Europe impacted the

performance of Royal Caribbean was “not the number of ships, but the size of the ships.” Prior to

2010, Royal Caribbean had four “Radiance class,” or smaller vessels, in Europe. The addition of

ships to the European Region in 2010 included the assignment of larger “Freedom class” vessels.

The “Radiance class” of ships was smaller vessels that were approximately 90,000 tons and held

1800 or fewer passengers, whereas the “Freedom class” ships held “3000 people.” The former

Business Development Specialist explained that in approximately the second half of 2010, Royal

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Caribbean “repositioned” two ships from the Caribbean to the Mediterranean region: the Liberty and

Freedom ships.

D. Royal Caribbean Experiences Problems with Its Bookings and Pricing Softness for its 2011 European Cruises

1. Numerous Factors Caused Royal Caribbean’s Booking Problems and Pricing Softness

68. After the Company deployed the surplus of ships to Europe for 2011, numerous

factors caused lack of demand, lagging bookings, and pricing softness for 2011 cruises, including:

(1) rising costs of airfare; (2) lack of demand for unique port destinations; (3) competition; and (4)

the recession. Moreover, the political unrest in early 2011 further exacerbated the significant

problems the Company was already facing.

a. The Rising Costs of Airfare Deterred North American Guests

69. The high price of airfare was one factor that contributed to the poor performance of

ships in the Eastern Mediterranean region. As the former Cruisetours Sales and Marketing Manager

explained, airfares were “redonculous” by April 2011. A cruise in the Eastern Mediterranean region

may have cost $499 per person, but North American guests had to pay as much as $2000 per person

in airfare and were unwilling to incur the charges for the flight to board the cruise and return. The

former Celebrity Cruises District Sales Manager also confirmed that the airfare contributed to price

softness in the Mediterranean. Likewise, the former Certified Vacation Planner 115 explained that

one of the “issues” that Royal Caribbean faced in trying to book the ships deployed in Europe to

15 The former Certified Vacation Planner 1 was employed with Royal Caribbean from July 2008 until September 22, 2011. In this capacity, he was a member of the Direct Sales team and responsible for making outbound calls to potential customers who had showed an interest in cruising with Royal Caribbean via the Company website or by calling Royal Caribbean directly.

26


capacity was “crazy air prices” that they had no control over. Indeed, round trip flights to Europe

ranged from $1500 to $1900 per person, and former Certified Vacation Planner 1 explained that

Royal Caribbean was “not selling” cruises in Europe for the 2011 sailing season because of concern

over the high costs of airfare. Similarly, the former Certified Vacation Planner 2 noted that the price

of airfare contributed to the Company’s inability to sell European cruises for the 2011 sailing season.

He explained that it did not matter if Royal Caribbean dropped the price of cruises in Europe to $0,

no one wanted to pay $1500 per person for a round trip flight to Europe to sail on a Royal Caribbean

ship deployed in Europe.

b. Lack of Demand for Unique Port Destinations

70. Another factor that contributed to the decline in bookings for European cruises was

the unique port destinations on Royal Caribbean itineraries. Indeed, some of the ports were not well

known to guests, and guests were not willing to book cruises to destinations with which they were

not familiar. For example, as the former Strategic Deployment Senior Analyst explained, problems

with the itinerary for the Voyager Seven-Night Adriatic Cruise contributed to pricing softness. As a

result of a series of “displacements” that occurred for ships that sailed in Europe and the

Mediterranean region in 2011, a decision was made for the Voyager to “take over” the Splendour, a

ship that sailed out of Venice on a seven-night Mediterranean itinerary. Significantly, the problem

with the Voyager “taking over” for the Splendour was that the Voyager did not have any “tender

boats,” which are small boats typically attached to the side of the ship and used in instances in which

a port did not have a dock. 16 Several ports in Greece did not have a dock and required a ship to have

its own “tender boats.”

16 In such instances, a ship anchored approximately one mile out to sea and the “tender boats” were used to transport the guests from the ship to the port. Some ports had their own “tenders,” such

27


71. Accordingly, as the former Strategic Deployment Senior Analyst disclosed, while the

plan for 2011 called for the Voyager to replace the profitable Splendour as a seven-night

Mediterranean cruise, this plan quickly unraveled. The Strategic Deployment team, including the

former Strategic Deployment Senior Analyst, was forced to “put together a couple of alternative

plans” for the Voyager. Ultimately, it was determined that the Voyager would become a seven-night

Adriatic cruise to ports in Dubrovnik, Croatia; Bari, Italy; Ravenna, Italy; Koper, Slovenia; and

Kotor, Montenegro. However, these ports were not well known to North American cruise guests or

other potential cruise guests. When the itinerary for the Voyager was finalized in late 2009 or early

2010, the former Strategic Deployment Senior Analyst and other members of the Strategic

Deployment group were convinced that the Voyager would not perform well. “Everyone knew this

was a terrible itinerary” for the Voyager, “but at this point there was nowhere to put the ship.”

72. The Company’s problems with the Voyager were confirmed by the former

Cruisetours Sales and Marketing Manager, who explained that the “Voyager seven-night Adriatic

Sea Coastal Cruise” stood out as a cruise that was “not going well at all” for Royal Caribbean. The

Voyager seven-night cruise was an Eastern Mediterranean cruise that, during weekly revenue

management meetings, was “constantly repeated and reinforced” as a ship that was not performing in

accordance with internal expectations in the months before the former Cruisetours Sales and

Marketing Manager left the Company in April 2011.

as the Grand Cayman ports. However, others did not, including ports in Greece where “tender boats” were required.

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c. Increased Capacity in Europe Resulted in Increased Competition

73. Another factor that contributed to pricing softness in Europe and the Mediterranean in

2011 was competition. The former Celebrity Cruises District Sales Manager explained that, despite

efforts to cater to different niches of the same markets, there was “always competition” among the

Royal Caribbean brands, including in Europe and the Mediterranean region. Moreover, there were

“a lot of ships” located in the European and Mediterranean regions. Of the nine ships in the

Celebrity Cruises fleet, approximately four or five were deployed in Europe and the Mediterranean

region. “All of the Solstice class” ships were in Europe or the Mediterranean region. The itineraries

for the Equinox, Eclipse, and Silhouette included destinations in Europe and the Mediterranean.

74. Beginning in or around 2010, there were “so many ships,” including in Europe, that

rates had “begun to plummet” in a bid to fill ships to capacity. According to the former Celebrity

Cruises District Sales Manager, there were so many ships that booking cruises in specific locations,

such as Europe, became a “tough sale.” Accordingly, the former Celebrity Cruises District Sales

Manager explained that there were “dramatically lower rates” for cruises offered in Europe and the

Eastern Mediterranean region in late 2010 and early 2011, especially in contrast to the rates available

in previous years.

75. The former Certified Vacation Planner 2 also explained that it was “well known”

within Royal Caribbean that the Company was unable to book cruises in Europe and the Eastern

Mediterranean as had been projected. Royal Caribbean had “repositioned half the inventory” of its

RCI brand into Europe and the Mediterranean region for the 2011 sailing season and had

substantially fewer ships in the Caribbean region, where there was high demand for cruises. As a

result, the performance of the domestic Direct Sales team suffered. Although ships were

29


repositioned from the Caribbean to Europe for the 2011 sailing season, the Direct Sales team “could

not sell in Europe.”

d. The Recession Impacted Cruise Business

76. In addition, the former Strategic Deployment Senior Associate explained that the

recession in the U.S. and the political unrest in Egypt and the Middle East in early 2011 contributed

to poor performance in the region. North Americans who were working were unwilling to “put

$10,000 into a European vacation” because of uncertainty about the economy. And, the fact that it

was possible that a vacationer could die in places like Egypt and the Middle East because of the

political unrest only compounded the issues. According to this former employee, North Americans

“definitely did not need to go” on a European vacation when the economy was poor and the potential

for death existed.

2. Royal Caribbean Fails to Meet Internal Expectations for Bookings for 2011 Cruises by Mid-2010

77. Although Royal Caribbean had deployed a significant number of ships to Europe,

including the Mediterranean, its bookings for these cruises lagged and failed to meet internal

expectations. According to the former Associate Vice President of Cruise Sales, sales for the “2011

European season” began in approximately March 2010. Likewise, the former Cruisetours Sales and

Marketing Manager explained that bookings for European and Eastern Mediterranean sailings begin

at least a year in advance of the scheduled sail date and typically increased around February or

March. In addition, the former Certified Vacation Planner 2 also explained that bookings for cruises

on the inventory in Europe and the Mediterranean regions began approximately one year before the

sailing season began in April 2011.

78. However, according to the former Business Development Specialist, even before

August 2010, Royal Caribbean “had trouble signing up” passengers for the cruises in the

30


Mediterranean region. This former employee explained that there was an obvious inability to “fill”

the ships “repositioned” in the Mediterranean, including the Liberty and Freedom vessels, which was

evident from “open cabins” and the Company’s offer of trips on the Mediterranean cruises to

employees as incentives to attain sales goals. As a result, the former Business Development

Specialist explained that the Company offered discount programs to customers and designed a

“bunch of contests” to provide incentives to sales personnel to increase sales.

79. The difficulty Royal Caribbean was experiencing in booking its surplus of European

and Mediterranean cruises was confirmed by the former Associate Vice President of Sales. As early

as August 2010, it was evident to the former Associate Vice President of Sales, based on his receipt

and review of the weekly and monthly reports, that the Company was “behind the eight ball” for the

European cruises for 2011 and not on track to meet internal expectations, which included forecasts

for pricing and inventory. The former Associate Vice President of Sales explained that, by third

quarter 2010, Royal Caribbean had failed to meet internal expectations for pricing or inventory. This

was evident from the fact that bookings – inventory or cabins sold – were not being made in

accordance with internal expectations for European cruises for 2011. Likewise, the former Certified

Vacation Planner 2 explained that, by at least late 2010, he and other members of the Direct Sales

team were aware that the Company was not performing as expected internally on sailings in Europe

and the Mediterranean region. He stated that it was “common knowledge that it was very difficult”

to book cruises according to expectations in the European and Mediterranean region for the 2011

sailing season.

1. Despite Problems with Bookings in the Third Quarter 2010, the Company Issues Positive Guidance for 2011

80. As further detailed below, Defendants had intimate knowledge of the Company’s

bookings and knew that the Company was “behind the eight ball” and failing to meet expectations

31


for pricing or inventory prior to the third quarter of 2010. Yet, despite this, on October 26, 2010,

Defendants touted the strength of Europe and their high EPS expectations for 2011, stating that the

Company “expects 2011 EPS to exceed its previous record of $3.26 per share.” See ¶144 below.

81. At the same time Defendants were falsely touting Royal Caribbean’s prospects for

2011 to the market, thereby artificially inflating the Company’s stock price, Defendants Fain,

Goldstein, and Hanrahan unloaded significant quantities of stock for millions in proceeds. In the

week following the Company’s announcement of robust projections for 2011, they sold a combined

352,877 shares of common stock for $14,432,610.

2. Royal Caribbean’s Booking Problems Continue in January of 2011 and Cause Pricing Softness

82. The former Strategic Deployment Senior Analyst explained that Royal Caribbean’s

strategy to “put all of its eggs in one basket” in terms of Eastern Mediterranean sailings and the fact

that there was “so much hardware there” in the Eastern Mediterranean region led to pricing softness.

By January or February 2011, the Company’s problems with bookings of European and Eastern

Mediterranean cruises had not improved. According to the former Cruisetours Sales and Marketing

Manager, it was evident from booking data available in January and February 2011 for cruises

scheduled for the second quarter of 2011, that Royal Caribbean would perform poorly in the Eastern

Mediterranean region for second quarter 2011. In essence, ships deployed in Europe in 2010, and

especially for cruises scheduled for itineraries in second quarter 2011, were not “on track” to meet

internal expectations. According to this former employee, pricing softness was “very much so” an

issue for Royal Caribbean in the Eastern Mediterranean region.

83. In particular, the former Cruisetours Sales and Marketing Manager explained that

Royal Caribbean was not “on track” to meet internal expectations for cruises in Europe, specifically

for “seven-night” and “long Med” cruises. This was evident from actual performance data for the

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cruises and was discussed among the revenue management team members and other managers and

members of the sales and marketing organizations as early as January 2011. During the last year or

so of the former Cruisetours Sales and Marketing Manager’s employment with Royal Caribbean

(April 2010 through April 2011), “Europe was always in the report.”

84. Moreover, based on notes that the former Crusietours Sales and Marketing Manager

took at the Company’s January 10, 2011, weekly revenue management meeting, the Brilliance and

Voyager were “suffering” and were “down $1.1 million,” meaning that the two ships were $1.1

million below internal expectations for the “globally sourced product,” which was being sold by

agents in North America, Europe, Italy, and South America. In addition, the Brilliance and Voyager

were “not selling at the price” projected for bookings or Royal Caribbean was not selling enough

tickets for the Brilliance and Voyager at the projected price to meet internal revenue expectations.

Indeed, the Voyager “seven-night Med suffered” for bookings for cruises in second quarter 2011.

85. Additionally, the former Cruisetours Sales and Marketing Manager recalled that, at

the January 31, 2011 revenue management meeting, the Voyager “seven-night Med” and “long

Med” cruises ( i.e. , 12 or 14-night cruises) on the Brilliance, Mariner, and Navigator were discussed

as being a “cause for concern.” Moreover, the attendees were informed that Royal Caribbean was

implementing a “Europe extravaganza sale,” which was similar to the “WOW” sales 17 the Company

offered. The “Europe extravaganza sale” was scheduled to run from February 22 to February 23.

Guests bookings cruises “for all of Europe” ( i.e. , for any European cruise Royal Caribbean offered)

17 The former Business Development Specialist explained that “wow sales” discounts included “reduced deposits” for customers and “on-board credits” to customers who booked their cruises between October 5th and 6th of each year. For example, while the typical deposit for a cruise was $250, the “wow sales” allowed customers to book a cruise with a lower deposit of only $100.

33


were eligible to receive a $50 on-board credit for three to five-night cruises, a $100 on-board credit

for six to nine-night cruises, and a $200 credit for 10-night or longer cruises.

86. Pricing softness for the Company’s cruises in January 2011 was confirmed by the

former Associate Vice President of Sales. By the time he departed from Royal Caribbean in January

2011, it was apparent that the United States travel agents were having difficulties “getting the pricing

[the Company] wanted to get” for the European cruises, including the cruises in the Mediterranean

region.

3. Despite Failing to Meet Internal Expectations for Bookings and Pricing, Defendants Issue Inflated Guidance for 2011 and Sell Massive Quantities of Stock

87. Although Defendants knew of the continued problems with bookings for the

Company’s European and, in particular, Mediterranean itineraries for 2011, Defendants made

numerous false positive statements to the market in an effort to artificially boost the price of Royal

Caribbean’s stock. For example, Defendants announced projected 2011 earnings of $3.25 - $3.45

for the full year of 2011 – which would exceed the Company’s previous record of $3.26 per share.

See ¶¶156-157 below. Moreover, as further detailed in ¶¶156-158 below, Defendants made the

following false and misleading statements about the Company’s financial performance on January

27, 2011:

• “WAVE 18 is off to a solid start and supports our earlier confidence in meaningful pricing recovery and record financial performance in 2011.”

“Looking to 2011, the Wave period is off to a good start. Our revenue management systems are actually remarkably good at discerning trends in

18 As described by Defendant Goldstein during the January 27, 2011 earnings conference call, “WAVE” or “wave period” “reflects a disproportionately high percentage of the overall bookings for the year from the period that starts about the second week in January and goes through . . . late February or early March.”

34


consumer demands, and we saw this trajectory taking shape last fall. That’s why we were able to project that 2011 would be such a record year.”

• “Since then, our bookings have continued roughly along the path we expected, with maybe a slight upward bias and the strong start to Wave has confirmed our expectations.”

• “Adam and Dan will provide more color at the brand and product level, but overall, the demand environment remains solid and we are projecting another year of healthy yield recovery.”

88. At the same time, Defendants falsely touted Royal Caribbean’s prospects for 2011 to

the market, thereby artificially inflating the Company’s stock price, they unloaded significant

quantities of stock for millions in proceeds. In approximately the two weeks following the

Company’s announcement of robust projections for 2011, they sold a combined 317,099 shares of

common stock for $14,823,704. In particular, the very day after the Company issued its “record”

2011 guidance, Defendant Fain sold 200,000 shares for more than $9.3 million.

E. The Company’s Lagging Bookings and Pricing Softness Continued in Early Spring 2011

Although Defendants had issued rosy guidance for 2011, it was evident to multiple former

employees that problems with the Company’s bookings and pricings continued into February and

Spring 2011.

a. February 2011

89. According to the former Cruisetours Sales and Marketing Manager, based on notes

taken at weekly revenue management meetings, by the February 7, 2011 weekly revenue

management meeting, sailings on the Mariner (Egypt itinerary) and Brilliance (cruising from

Barcelona to Dubai) were “$4.1 million” below expectations. Moreover, it was evident that Europe

was down overall and that the second and third quarter 2011 were “down” below expectations. In

particular, the Voyager was the “biggest sufferer,” including in terms of “track ( i.e. , internal

projections), volume, and rate.”

35


90. By the Company’s February 14, 2011 revenue management meeting, the former

Cruisetours Sales and Marketing Manager explained that prices for cruises on the Vision to the

Middle East were “reduced 15 percent” for September and October 2011 and that “rates” were

“reduced 15 percent” for the Navigator “14-night Med” cruise. In addition, there were

“cancellations” for the Mariner as a result of its cruise destinations being redirected because of the

uprising in Cairo. This former employee explained that while Mariner guests were offered

alternatives to the itinerary that included Egypt, such as a stop in Istanbul, Turkey or another cruise,

they were often unwilling to accept the alternatives for a number of reasons. First, some alternative

itineraries were not timely scheduled as a result of difficulties Royal Caribbean experienced in

negotiating port contracts. Moreover, guests who booked cruises destined for Egypt sought to see

the pyramids and other tourist attractions and were typically unwilling to accept alternative

destinations. And, Americans of Jewish descent who had recently been to Israel were not permitted

in some countries, such as the United Arab Emirates, and were unwilling to accept alternatives to

scheduled cruises as a result. In addition to concerns about Egypt, guests were concerned about

destinations near Egypt, such as Dubai and the United Arab Emirates. This resulted in customers

who had booked cruises with destinations in Egypt and nearby locations cancelling their cruises,

which contributed to the “shortfall” for cruises that included these destinations. As the former

Cruisetours Sales and Marketing Manager explained, there were cancellations and “we were seeing

bookings fall off.”

b. March 2011

91. The former Cruisetours Sales and Marketing Manager recalled, at the March 21,

2011 revenue management meeting, there was a discussion regarding a “broad shortfall across

products.” Indeed, Royal Caribbean was “down $12 million overall track ( i.e., internal

projections).” This former employee explained that the “largest slowing” was in Europe and on the

36


Oasis and Allure. He stated that “April was slow” and cruises that were “once doing well were

slow.” In particular, Europe was “down $8 million,” the Adventurer was “down $3 million,” and the

“seven-night Med” experienced a “broad shortfall.”

92. The Celebrity Brand of ships was also facing problems with its Mediterranean

sailings in March of 2011. The former Celebrity Cruises District Sales Manager explained that the

Company launched a new Celebrity Cruises ship in August 2011 – the Silhouette – which included

the Middle East destination, and ports in Turkey, Israel, Rome, and Greece, among other locations.

Although booking for the launch of the Silhouette began approximately 12 to 16 months prior to the

August 2011 launch date, by January or February 2011, the “ship was pretty empty.” By March

2011, it was apparent that bookings on the Silhouette were “below expectations” by both rate and

volume and were not meeting internal pricing expectations. The former Celebrity Cruises District

Sales Manager estimated that the Silhouette was “dragging by 50 percent,” meaning that it was an

estimated “50 percent” behind internal volume and rate expectations by March 2011. Pricing was

really low for the Silhouette in March 2011. That is, by January or February 2011, the ship was

“really empty” and, within approximately one month thereafter, the prices were dramatically

lowered in a bid to increase booking numbers. The reduced prices allowed for more cabins to be

booked on the Silhouette, but the cabins were booked at lower prices than had been forecasted.

93. In addition, the former Certified Vacation Planner 2 explained that beginning in

approximately March 2011, the Tuesday promotions were predominantly (at least 80%) for

European and Eastern Mediterranean sailings, offering the cruises at reduced and sometimes prices

half-off the original fare. 19

19 This former employee explained that each Monday, there were promotions made available to the Crown and Anchor Royal Caribbean loyalty programs guests, which were extended to the

37


94. The former Celebrity Cruises District Sales Manager recalled the poor performance of

the Silhouette in the Eastern Mediterranean region was “absolutely” discussed on the weekly sales

conference calls20 in which he participated in the early 2011. According to the former Celebrity

Cruises District Sales Manager, the 2011 forecast for the Celebrity Cruises brand was an “optimistic

forecast” that was “hugely overstated,” “ridiculously high,” and “just unrealistic.”

c. April 2011

95. The former Cruisetours Sales and Marketing Manager explained that, during the April

4, 2011 revenue management meeting, attendees discussed the “long Med” and “seven-night Med”

cruises were suffering the most. The “long Med” cruise was “down $2 million.” While the “seven-

night Med” was “better with volume, but was not with rates for second quarter.” In addition, the

Splendor was “increasing in shortfall,” the Navigator and Adventurer were “down $500,000,” and

the Liberty was “down $800,000.” Moreover, the Voyager “seven-night Adriatic” cruise was

“suffering.” During the meeting, the attendees discussed the fact that the rising cost of airfares was

general public on Tuesday of each week. The promotions were typically available for two days to the loyalty program guests – Monday and Tuesday – and for one day to the general public – on Tuesday. The promotions were for sailings that were scheduled to sail from 30 to 60 days of the date of the promotion and for “soft sailings” – those cruises for which there was substantial inventory remaining in the month prior to the scheduled sail date.

20 According to the former Celebrity Cruises District Sales Manager, the weekly sales conference calls were held each Monday led by the Regional Director of Sales, Michelle Homoky. Two Regional Sales Managers and District Sales Managers for South Florida, the Carolinas, Virginia, Maryland, Atlanta, Georgia, and Tennessee participated in the weekly sales calls. There were five other sales regions for the Celebrity Cruises brand, so there were five similar calls that took place each week with a similar number of participants. The calls were held to discuss a number of topics relating to performance and strategy. The attendees discussed the “overall sales strategy,” as well as the performance of specific ships and promotions aimed at improving performance of specific ships.

38


causing pricing softness and fewer bookings for Mediterranean cruises, including the Voyager

“seven-night Adriatic” cruise, which was “not doing well.”

96. In addition, the former Certified Vacation Planner 2 explained one indicator that the

Company was unable to book cruises as expected in Europe and the Eastern Mediterranean region

was that in approximately April 2011, the Company began paying the Direct Sales outbound agents

an additional $20 per booking for cruises in Europe and the Mediterranean. The increased

commission had “no effect on improving bookings.”

F. Defendants Take an Insufficient Reduction to Guidance and Continue to Mislead the Market

97. Despite Defendants’ awareness of the Company’s lagging bookings and pricing

softness in its European and Mediterranean itineraries in the early Spring of 2011, Defendants failed

to adequately inform the market of the problems the Company was experiencing when it issued its

2011 first-quarter results on April 28, 2011. While the Company reduced its full year EPS guidance

at this time, Defendants blamed “geopolitical events” for this reduction and failed to inform the

market of or adequately account for the lagging demand and pricing softness it had been

experiencing since before August of 2010.

98. Moreover, by the time the Company issued its updated guidance on April 28, 2011, a

number of significant events and political uprisings that impacted the Company’s Mediterranean

sailings had already occurred. For example, by the end of December 2010, numerous bombings had

occurred in Greece, and the country was experiencing nationwide strikes and riots, many turning

violent and bringing public transportation to a halt. In January 2011, anti-government protests and

riots began in Egypt where police responded with tear gas, beatings, and live ammunition to disperse

protestors. And, by March 2011, protests were taking place across Syria, many turning deadly. In

39


particular, by the time the Company updated its guidance in April 2011, the following significant

events had already occurred:

• On December 15, 2010, nationwide strikes broke out across Greece bringing most of the country to a standstill as public transportation, schools, and hospitals shut down.

• January 25, 2011 marked the first day of demonstrations in Egypt, where thousands of anti-government protesters rioted in the center of Cairo. This protest was the largest Egypt had seen for years.

• By February 9, 2011, labor strikes spread throughout Egypt, with thousands of Egyptians protesting and rioting throughout the country, blocking main highways and railways and setting fire to government buildings.

• By February, 2011, nationwide labor strikes and demonstrations in Greece had turned violent with more than 30,000 angry workers protesting near the Greek parliament. This riot halted trains, ferries, and most public transport, and caused more than 100 flight cancellations.

• On March 19, 2011, violent protests calling for political freedom took place across Syria in what has been described as the gravest unrest in years in Syria.

• Riots and protests in Greece continued throughout February and March, and by March 25, 2011, tension rose leading to more anti-government protests and demonstrations during the Greek Independence Day parade.

99. The sheer number and gravity of the events that had already occurred in this region

prior to April 2011 indicated to Defendants that the lack of demand for the Company’s European

itineraries, and in particular the Mediterranean, already lagging bookings, and pricing softness would

continue (if not magnify) into the second quarter.

100. Rather than taking this into account when updating its guidance, Defendants issued

new annual guidance ($3.10 to $3.30), which at the high end of the range was still record EPS

guidance for the Company. While slightly reduced, this guidance was still unreasonable and

unattainable at the time it was made based on then-known facts. In addition to issuing such inflated

40


guidance, on April 28, 2011, Defendants continued to tout strong bookings and the Company’s

effective management of the “geopolitical events:”

• “The year started off with a roar - strong bookings, low costs and solid profits - and in the first quarter every one of our brands exceeded its forecast . . . .”

• “Nonetheless, other than adjustments for fuel pricing, our earnings guidance for the year is essentially intact despite these dramatic geopolitical events. The demand for the majority of our products has remained quite strong and even the impacted itineraries have begun to improve.”

• “The company saw improvement in both ticket and onboard revenue yields and across all major product groups.”

• “Bookings at the beginning of the year in the Mediterranean and in Asia were quite strong.”

• “The bottom line is we still expect 2011 to be a great year. Almost as strong as we had originally hoped.”

• “The recent geopolitical events are tough facts of life but I think we’re managing through them effectively.”

101. In such a way, Defendants were successful in assuaging investors and analysts as to

Royal Caribbean’s performance in April.

102. Eventually, Defendants could no longer conceal the impact that Royal Caribbean’s

lagging bookings and pricing softness was having on the Company’s bottom line. On July 27, 2011,

after the market closed, Royal Caribbean issued a “kitchen sink” press release in which, among other

things, it revealed to the market that it would be required to take a further reduction to its annual

guidance to account for deteriorating books and pricing softness with respect to its Mediterranean

cruises. As doubt was cast upon the veracity of Defendants’ prior statements, and on unusually

trading volume, Royal Caribbean’s stock price plummeted $4.50 a share, or approximately 13%,

from a close of $35.76 on July 27, 2011 to a close of $31.26 on July 28, 2011. As Defendants’

announcements and analyst commentary continued to make their way into the market over the next

several days, and as a result of the Company’s second quarter Form 10-Q filed on August 1, 2011,

41


Royal Caribbean’s stock price continued to fall, ultimately dropping approximately 19% between

July 27, 2011 and August 2, 2011, causing millions in investor losses.

103. At the same time investors were suffering, the Individual Defendants profited,

unloading 669,976 shares of common stock for proceeds totaling more than $29.2 million during the

Class Period.

V. SCIENTER ALLEGATIONS

104. The Individual Defendants acted with scienter in that they knew or recklessly

disregarded that the public documents and statements issued or disseminated in the name of the

Company were materially false and misleading, and knowingly or severely recklessly substantially

participated or acquiesced in the issuance or dissemination of such statements or documents as

primary violators of the federal securities laws.

105. The Individual Defendants, by virtue of their receipt of information reflecting the true

facts regarding Royal Caribbean and its business practices, their control over and/or receipt of Royal

Caribbean’s allegedly materially misleading misstatements and/or their associations with the

Company that made them privy to confidential proprietary information concerning Royal Caribbean,

were active and culpable participants in the fraudulent scheme alleged herein. The Individual

Defendants knew and/or severely recklessly disregarded the falsity and misleading nature of the

information, which they caused to be disseminated to the investing public. The ongoing fraud as

described herein could not have been perpetrated over a substantial period of time, as occurred,

without the knowledge and/or severe recklessness and complicity of the personnel at the highest

level of the Company, including the Individual Defendants.

106. In addition to the numerous allegations throughout the Complaint, herein incorporated

by reference, demonstrating the Individual Defendants’ scienter, for the reasons further detailed

herein, each of the Individual Defendants had knowledge of or recklessly disregarded that the public

42


statements and documents the Company issued or disseminated were materially false and

misleading.

107. Defendants also undertook the affirmative obligation to obtain knowledge in order to

ensure the Company’s disclosures to the market were truthful by executing SOX certifications ( see,

e.g. , ¶151).

108. The Individual Defendants acted with scienter in that they knew or recklessly

disregarded that the public documents and statements issued or disseminated in the name of the

Company were materially false and misleading, and knowingly or severely recklessly substantially

participated or acquiesced in the issuance or dissemination of such statements or documents as

primary violators of the federal securities laws.

B. The Individual Defendants Were Hands-On Executives

109. According to the former Senior Vice President of Finance and Treasury, 21 within one

month of joining Royal Caribbean, it became “very apparent” to him that Rice was going to be “very

hands on within finance.” Rice sought to run investor relations, financial planning, and strategy.

The former Senior Vice President of Finance and Treasury explained that the “tone at the top” at

Royal Caribbean was such that Defendants Rice and Fain “understood, knew, and basically had great

visibility into bookings on a daily basis.” He stated that Defendants Fain and Rice were “so detailed

oriented and need[ed] to have their hands in everything.”

110. According to the former Senior Vice President of Finance and Treasury, Defendants

Fain and Rice had “intimate knowledge” about finances at Royal Caribbean. Indeed, this former

21 The former Senior Vice President of Finance and Treasury was employed with Royal Caribbean from February 2008 through approximately December 2008 or January 2009 and reported directly to Defendant Rice. In this capacity, his responsibilities included investor relations, financial planning and analysis, treasury, and strategy.

43


employee, who reported directly to Defendant Rice, stated that Rice and Fain were “intimately”

involved in the “financial side” of the business at Royal Caribbean. It was “just Brian’s [Rice’s]

nature to be so involved” in the financial operations of the Company. And, it was “just how Brian

[Rice] and Richard [Fain] operated – it was their modus operandi.”

111. This former employee stated that “Brian Rice knew everything going on. He knows

revenue like no one’s business.” Moreover, he explained that Rice knew about all revenue-related

events and “knew about it on a daily basis.” Indeed, he stated that Rice “came up through the

revenue business” and knew revenue details at the “ship-level.” Similarly, Fain “literally knew all

details” about revenue at Royal Caribbean. Indeed, according to the former Senior Vice President of

Finance and Treasury, Defendant Rice was often in Defendant Fain’s office “discussing financials.”

Moreover, Defendant Rice frequently met with Doug Santoni, who led the Revenue Management

Organization during the former Senior Vice President of Finance and Treasury’s employment with

the Company, particularly “whenever changes in revenue” ensued.

112. Defendant Rice’s knowledge of revenue is confirmed by the Company’s website,

which states that: “He is widely recognized as a leader in revenue management, having overseen the

conceptual development and implementation of the company’s highly regarded revenue-

management systems and procedures. He also designed many of the company’s financial-

management models, and led numerous operational and financial initiatives.”

113. The former Business Development Manager also confirmed that Defendants Fain,

Rice, and Goldstein took revenue planning “very seriously.” Indeed, ticketing and onboard revenues

were “very important information” at Royal Caribbean. Defendants Fain, Rice, and Goldstein had

“regular, constant contact” with the Revenue Planning personnel and kept abreast of “how we were

pricing ships,” whether the pricing was a “good value,” and whether Royal Caribbean was “getting

44


what it set out to get” in terms of pricing for each ship. Moreover, Defendant Fain was “very

cognizant” of onboard revenues. This information was also available in the “one stop list” that was

available to the Sales team, external travel partners, and the executives on the Royal Caribbean

Intranet.

114. According to the former Senior Vice President of Finance and Treasury, Royal

Caribbean sought to have each cruise “100 percent booked.” In order to strive toward this goal,

bookings for cruises began 18 to 24 months before the sail date. There were revenue projections

made for particular milestones leading up to the sail date. For instance, Royal Caribbean established

goals regarding the number of bookings that needed to be attained one year “out” from the sail date

and six months “out” from the sail date. As an example, revenue projections for a particular cruise

might have been based on a ship being 50% booked at “one year out” and 65% booked six months

prior to the sail date. Bookings and pricing were analyzed down to the “class of service” and the

revenue management function was “extremely sophisticated.” Defendants Rice and Fain knew the

revenue projections and underlying basis for the projections “intimately.” Moreover, Defendants

Fain and Rice received updates about how actual bookings compared to projected bookings.

C. The Individual Defendants Reviewed Sales and Revenue Reports

115. The Individual Defendants were also intimately aware of the Company’s bookings,

sales, and pricing from various reports that they received. For example, as further detailed above,

the former Associate Vice President of Sales explained that the Company prepared daily and weekly

reports which were distributed by e-mail to a “huge laundry list” of recipients, including Defendant

Goldstein and the “department heads.” Moreover, this former employee recalled that monthly

revenue review reports were also presented to Defendant Goldstein at the Company’s monthly

revenue review meetings, and a separate revenue review report for the Celebrity Cruises brand was

prepared and presented to Defendant Hanrahan.

45


116. The Individual Defendants’ receipt of revenue reports was also confirmed by the

former Senior Executive Assistant, 22 who explained that Block and members of her team e-mailed

Excel-based reports containing details concerning revenue and the revenue-related financial

performance of the ships to the “executive team,” which included Senior Vice Presidents, Bauer,

Shrut, Goldstein, and Fain. In addition, the former Senior Executive Assistant and the Executive

Assistants to Goldstein and Fain, among others, received the reports. The former Senior Executive

Assistant explained that there were reports generated and used internally by Block and her Revenue

Management team on a weekly basis and revenue-related reports that were generated by the Revenue

Management team and circulated to the “executive team.” Defendant Fain and his Executive

Assistant were always copied on the revenue reports that went to the executive team, as was the

former Senior Executive Assistant. Moreover, the former Senior Executive Assistant further

explained there were different variations of the revenue-related reports which were sent by Block or

a member of her Revenue Management team to the executive team. Some of the reports detailed

revenue by sailings, while other reports detailed revenue at the ship level. According to the former

Senior Executive Assistant, given that there were several types of revenue-related reports sent to the

executive team, they received an e-mail with some type of revenue report approximately once per

week.

117. Moreover, according to the former Vacation Planning Sales Manager, Defendant Fain

received and reviewed “statistical reports” on the call center operations, which were prepared by a

Revenue Analyst in the Miramar, Florida call center and distributed via e-mail. The “statistical

22 The former Senior Executive Assistant was employed with the Company from January 2008 through October 2010 and worked for the Senior Vice President of Hotel Operations Lisa Bauer (“Bauer”) and the Senior Vice President of Brand Finance Barbara Shrut (“Shrut”).

46


reports” Fain received detailed “service levels.” For instance, the reports contained performance

data such as the number of calls received, the number of “abandoned calls,” and how long it took to

answer the incoming calls. This “service level” data was used, in part, to forecast sales, including

how many calls were to be expected and how many of the forecasted calls were likely to convert to

bookings. In addition, the “service level” data was used to determine the requisite “headcount”

required to handle the forecasted call volume. The former Vacation Planning Sales Manager

recalled that Fain provided feedback on the “statistical reports” and made inquiries about deviations

from specified “service levels,” including why calls were “abandoned.”

D. The Individual Defendants Attended Meetings Where Sales and Revenue Data Was Discussed

118. The Individual Defendants were also aware of the Company’s lagging bookings and

pricing softness through their attendance at meetings where these metrics were discussed. Indeed,

the former Associate Vice President of Sales explained that Defendants Rice, Goldstein, and

Hanrahan attended the monthly revenue review meetings, as did Director-level employees and their

superiors. According to the former Associate Vice President of Sales, Defendant Rice had

previously worked in the Revenue Management group and, as a result, was closely connected to the

revenue management and reporting functions. Moreover, the former Cruisetours Sales and

Marketing Manager explained that Defendant Rice presented financial data at quarterly management

meetings.

E. The Individual Defendants Admittedly Tracked the Company’s Demand and Bookings

119. The Individual Defendants’ intimate knowledge of the Company’s booking

environment and cruise demand is also evident from their repeated statements throughout the Class

Period describing the Company’s booking volumes and cruise demands:

47


On October 26, 2010, Defendant Fain stated: “Furthermore, I remind you that the booking period is still early, and we get constantly more understanding of patterns as we approach year end and as we enter the wave period. Nevertheless, our revenue management systems are quite sophisticated, and we get a lot of insight from early patterns. Those patterns are very encouraging so far. And historically, they’ve been quite accurate.” See October 26, 2010 Earnings Conference Call.

During the October 26, 2010 conference call, Defendant Rice stated: “Moving on to the booking environment, demand for our brands continues to be stable and remarkably consistent, while showing a trend of gradual improvement.” See ¶146.

On October 26, 2010, Defendant Hanrahan stated: “During the third quarter, we had healthy demand for all of our products with both Europe and Alaska performing particularly well.” “Booking for Europe held up well in both our Solstice and non-Solstice Class ships.” See ¶147.

On January 27, 2011, Defendant Rice stated: “Moving on to the booking environment, we are still early in the Wave season but the strength of demand continues to be consistent with our earlier expectations. Last week we had the best booking week in our Company’s history as measured by both guest booking volumes and revenue.” See ¶158.

• On July 28, 2011, Defendant Fain stated: “I see our reports, which show that our booking volumes and our APDs are up for each of the next six quarters, and I realize just how bright our short and long-term future will be.” See July 28, 2011 Earnings Conference Call.

On July 28, 2011, Defendant Rice stated: “Moving on to the booking environment, overall, load factors and APDs are ahead of the same time last year for both the third and fourth quarter. For the balance of the year, all of our brands are showing positive trends.” See July 28, 2011 Earnings Conference Call.

120. These statements further demonstrate that, throughout the Class Period, Defendants

possessed knowledge of, and closely monitored the Company’s booking volumes and cruise

demands.

F. Individual Defendants’ Suspicious Insider Trading

121. While in possession of non-public adverse information regarding the true financial

condition of Royal Caribbean, its lagging bookings for European cruises, and in particular those to

48


the Mediterranean, its flagging sales, and pricing softness, and at the same time that they touted the

Company’s rosy outlook for 2011, Defendants took full advantage of the artificial inflation of Royal

Caribbean’s common stock caused by Defendants’ misrepresentations. In fact, during the Class

Period, the Individual Defendants disposed of a combined 669,976 shares of common stock for

proceeds totaling $29,256,313.

G. Defendant Fain’s Insider Sales

122. Defendant Fain alone disposed of 500,000 shares of common stock for proceeds of

$21,672,500 during the Class Period, as detailed in the chart below:

Date Shares Price Proceeds Sold

03-Nov-2010 150,000 $40.05 $6,007,500

04-Nov-2010 150,000 $42.26 $6,339,000

28-Jan-2011 200,000 $46.63 $9,326,000 500,000 $21,672,500

123. Defendant Fain’s stock sales were unusual and suspicious in amount in that

Defendant Fain liquidated more than 31.8% of his common stock holdings during the Class Period.

124. In addition, Defendant Fain’s stock sales were unusual and suspicious in timing. His

sales were executed at times calculated to maximize his personal benefit from the artificial inflation

of Royal Caribbean’s stock price. In particular, Defendant Fain disposed of a total of 300,000 shares

of common stock on November 3 and 4, 2010. These trades came just a week after the Company

issued its third quarter earnings results and initial 2011 guidance, announced that “2011 could be a

year of record profits for our company,” and conveyed that bookings for Europe for 2011 were

heading in a positive direction. In particular, in the Form 8-K filed on October 26, 2010 and during

the associated earnings conference call held the same day, Defendant Fain made the following

positive statements about the continued success of the Company:

49


“Today, obviously, we are reporting more good news. As Brian will go into further in a few moments, both revenues and expenses continue to improve. Profits for the third quarter were better than expected, and the fourth quarter’s better than expected, and 2011 is better than expected. I’m told that some would call that a trifecta.” See ¶145.

“Our brands are gaining traction, and our global strategy is working. So, while I wish the economy were more of a driver, the fact that we’re doing this well against such headwinds argues particularly well for the future.” See ¶145.

“Profitability momentum moving into 2011 is also quite strong with our newest vessels performing exceptionally well and our management team controlling costs very effectively. The economy is still tough, but even facing such headwinds our outlook is remarkably encouraging.” See ¶144.

125. These statements had the intended effect of artificially inflating the Company’s stock

price to over $40 per share. Defendant Fain then took full advantage of this inflation when he

disposed of his shares, reaping proceeds of $12,346,500.

126. Similarly, Defendant Fain disposed of a huge quantity of stock and reaped massive

proceeds on January 28, 2011 – the day after the Company filed its Form 8-K reporting “better than

expected results and forward guidance.” In this press release, the Company issued record guidance

for 2011, despite the ongoing problems Royal Caribbean was experiencing with bookings, demand

for European/Mediterranean cruises, and pricing softness. Specifically, in the Company’s January

27, 2011 Form 8-K and during the earnings conference call held the same day, Defendant Fain made

the following positive statements about the financial performance of the Company:

“WAVE is off to a solid start and supports our earlier confidence in meaningful pricing recovery and record financial performance in 2011.” See ¶156.

“Looking to 2011, the Wave period is off to a good start. Our revenue management systems are actually remarkably good at discerning trends in consumer demands, and we saw this trajectory taking shape last fall. That’s why we were able to project that 2011 would be such a record year.” See ¶157.

50


• “Since then, our bookings have continued roughly along the path we expected, with maybe a slight upward bias and the strong start to Wave has confirmed our expectations.” See ¶157.

127. Just one day after making these positive statements regarding the Company’s

financial performance, Defendant Fain unloaded 200,000 shares of Royal Caribbean common stock

at a high price of $46.63 for proceeds of $9,326,000. Accordingly, Defendant Fain’s stock sales

were conspicuously well-timed.

4. Defendant Rice’s Insider Sales

128. During the Class Period, Defendant Rice disposed of 76,930 shares of common stock

for proceeds of $3,604,762, as detailed in the chart below:


14-Feb-2011 3,000 $46.90 $140,700 14-Feb-2011 24,000 $46.91 $1,125,840 14-Feb-2011 49,930 $46.83 $2,338,222

76,930 $3,604,762

129. Defendant Rice’s stock sales were unusual and suspicious in amount in that they were

nearly two times the amount of stock he sold in the five years prior to the start of the Class Period.

Moreover, Defendant Rice’s Class Period sales of common stock represented more than 39.2% of

his common stock holdings.

130. Defendant Rice’s stock sales were also unusual and suspicious in timing. Defendant

Rice’s sales were executed at times calculated to maximize his personal benefit from the artificial

inflation of Royal Caribbean’s stock price. Defendant Rice began trading after the Company issued

its inflated guidance for 2011, indicating to the market that 2011 would be strong for the Company.

Specifically, during the earnings conference call held January 27, 2011, Rice made statements

touting the strength of the Company’s demand and booking environment:

51


“Moving on to the booking environment, we are still early in the Wave season but the strength of demand continues to be consistent with our earlier expectations. Last week we had the best booking week in our Company’s history as measured by both guest booking volumes and revenue.” See ¶158.

“Adam and Dan will provide more color at the brand and product level, but overall, the demand environment remains solid and we are projecting another year of healthy yield recovery.” See ¶158.

131. Just two weeks after making these positive statements and after the Company issued

its record 2011 guidance, Defendant Rice sold his shares while Royal Caribbean stock traded above

$46, reaping proceeds of $3,604,762. Moreover, Defendant Rice’s Class Period sales were not made

pursuant to a 10b-5 plan. Accordingly, Defendant Rice’s stock sales were conspicuously well-timed.

5. Defendant Goldstein’s Insider Sales

132. Also, during the Class Period, Defendant Goldstein disposed of 54,090 shares of

common stock for proceeds of $2,312,856, as detailed in the chart below:


01-Nov-2010 11,014 $39.27 $432,520

02-Nov-2010 19,885 $39.35 $782,475

16-Feb-2011 23,191 $47.34 $1,097,862

54,090 $2,312,856

133. Defendant Goldstein’s stock sales were unusual and suspicious in amount in that they

were nearly three times the amount of stock that he sold in the five years prior to the Class Period.

Moreover, Defendant Goldstein’s Class Period sales of common stock represented more than 13.9%

of his common stock holdings.

134. Defendant Goldstein’s stock sales were also unusual and suspicious in timing in that

they were executed at times calculated to maximize his personal benefit from the artificial inflation

of Royal Caribbean’s stock price. Defendant Goldstein traded a total of 30,889 shares of common

stock approximately on November 1 and 2, 2010. These trades came just days after the Company

issued its third quarter earnings results and initial 2011 guidance, announced that “2011 could be a

52


year of record profits for our company,” and conveyed that bookings for Europe for 2011 were

heading in a positive direction. In fact, on October 26, 2010, Defendant Goldstein made the

following positive statements about the Company:

• “Royal Caribbean International continues its steady recovery from the challenges of 2009.” See October 26, 2010 Earnings Conference Call.

• “Really all I can tell you at this point is, of course, is that we’re very aware of the overall competitive environment and our own increasing capacity. We’ve been successful in growing our volumes, of sourcing from the different priority markets that we have in Europe and we’ve remained pleased at the interest of Americans who also go on to our products over there. So, we expect a competitive market environment as it has been, and our intention is to compete successfully in that environment . . . . See 1 148.

135. Just days after making these positive statements about the performance of the

Company, Defendant Goldstein took advantage of the artificially inflated price of Royal Caribbean

stock to reap proceeds of $1,214,995.

136. Similarly, Defendant Goldstein disposed of 23,191 shares of common stock

approximately two weeks after the Company issued its inflated guidance for 2011 indicating to the

market that 2011 would be a strong year for the Company. In fact, during the January 27, 2011

earnings conference call, Defendant Goldstein made the following positive statements regarding the

financial performance of the Company:

• “As Richard and Brian have noted, the Wave period is off to a promising start.” See 1 159.

• “We continue to benefit from [close in bookings] where late volume is needed and our newer products continue to sell at premium pricing to the relevant cruise competition.” See 1 159.

137. Taking full advantage of the artificial inflation in the Company’s stock price caused

by these statements and the Company’s inflated 2011 guidance, while the stock was trading at a high

price of $47.34, Defendant Goldstein sold his shares for $1,097,862. Accordingly, Defendant

Goldstein’s stock sales were conspicuously well timed.

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6. Defendant Hanrahan’s Insider Sales

138. During the Class Period, Defendant Hanrahan disposed of 38,956 shares of common

stock for proceeds of $1,666,195, as detailed in the chart below:

Date Shares Sold

27-Oct-2010 16,978

27-Oct-2010 2,500

27-Oct-2010 2,500

14-Feb-2011 16,978 38,956

Price Proceeds

$39.77 $675,215

$39.19 $97,975

$39.17 $97,925

$46.83 $795,080 $1,666,195

139. Defendant Hanrahan’s stock sales were unusual and suspicious in amount in that

Defendant Hanrahan did not report any sales of Royal Caribbean stock in the five years prior to the

start of the Class Period. Additionally, Defendant Hanrahan’s Class Period sales of common stock

represented more than 18.3% of his common stock holdings.

140. Moreover, Defendant Hanrahan’s stock sales were unusual and suspicious in timing

in that such sales were executed at times calculated to maximize his personal benefit from the

artificial inflation of Royal Caribbean’s stock price. Defendant Hanrahan began trading on October

27, 2010, the day the Company issued its third-quarter Form 10-Q, and the day after the Company

issued its third quarter earnings results and initial 2011 guidance, announcing that “2011 could be a

year of record profits for our company” and conveying that bookings for Europe for 2011 were

heading in a positive direction. In particular, during the October 26, 2010 earnings conference call,

Defendant Hanrahan made statements that painted a positive picture of the Company’s financial

performance:

• “indications for our 2011 Europe . . . season are encouraging and contributing to the yield improvements Brian mentioned.” See 1 147.

• “During the third quarter, we had healthy demand for all of our products with both Europe and Alaska performing particularly well.” See 1 147.

• “Booking for Europe held up well in both our Solstice and non-Solstice Class ships.” See 1 147.

54


141. Just one day after making these positive statements regarding the cruise demand and

booking environment of the Company, and with the stock trading more than four dollars higher than

it had prior to the Company’s announcement, Defendant Hanrahan sold 21,978 shares of common

stock for proceeds of $871,115.

142. Similarly, Defendant Hanrahan disposed of 16,978 shares of common stock

approximately two weeks after the Company issued its inflated guidance for 2011, indicating to the

market that 2011 would be a strong year for the Company. In fact, Defendant Hanrahan’s trades

came only two weeks after he made the following positive statements regarding the performance of

the Company:

• “We are very excited about the upcoming year for Celebrity. As you’ve heard everybody before me mention, we’ve been pleased with the first couple of weeks of Wave and as always, have a lot of good things happening.” See January 27, 2011 Earnings Conference Call.

• “At the recent Travel Weekly Awards here in the states, we won best premium cruise line, best premium cruise ship and best European cruise line.” See January 27, 2011 Earnings Conference Call.

143. Only two weeks after making these positive and encouraging statements regarding the

performance of the Company, and while the stock was trading at a high price of $46.83, Defendant

Hanrahan reaped proceeds of $795,080 in proceeds from the sale of his shares. Accordingly,

Defendant Hanrahan’s stock sales were conspicuously well timed.

VI. DEFENDANTS’ FALSE AND MISLEADING CLASS PERIOD STATEMENTS

144. The Class Period begins on October 26, 2010. On that date, Royal Caribbean

reported its third quarter 2010 results and commented on the Company’s 2011 guidance. The

Company’s press release stated in pertinent part:

MIAMI - October 26, 2010 - Royal Caribbean Cruises Ltd. (NYSE, OSE: RCL) today announced a 55% year-over-year increase in third quarter earnings, provided higher earnings guidance for full year 2010 and commented on 2011.

55


* * *

• Looking to Next Year

While it is early in the booking cycle, 2011 Yields are trending positively in all four quarters and the company expects yield increases in 2011 comparable to 2010. As a result, early 2011 EPS modeling indicates that next year will set a new EPS record for the company.

“We continue to characterize demand for our brands as steady and solid and the strength of our third quarter results is certainly a validation of that,” said Richard D. Fain, chairman and chief executive officer. Fain continued, “Profitability momentum moving into 2011 is also quite strong with our newest vessels performing exceptionally well and our management team controlling costs very effectively. The economy is still tough, but even facing such headwinds our outlook is remarkably encouraging.”

*

Looking to 2011, while recognizing it is still too early to provide definitive guidance, the company reported that early indications are encouraging.

*

Taking into account these revenue trends as well as current fuel prices and exchange rates, the company expects 2011 EPS to exceed its previous record of $3.26 per share.

145. Also, on October 26, 2010, the Company hosted a conference call with various

securities analysts. Defendants Fain, Rice, Goldstein, and Hanrahan participated in the call. During

the call, the Individual Defendants touted the strength of the Company’s European itineraries and

their high expectations for 2011. Defendant Fain stated in pertinent part:

As always, it’s a pleasure to have an opportunity to provide an update on what’s happening in our business. And you’ll all be happy to know that one of the advantages of having good news is that it’s easier and quicker to report than the converse. Today, obviously, we are reporting more good news. As Brian will go into further in a few moments, both revenues and expenses continue to improve. Profits for the third quarter were better than expected, and the fourth quarter’s better than expected, and 2011 is better than expected. I’m told that some would call that a trifecta.

* * *

56


Our brands are gaining traction, and our global strategy is working. So, while I wish the economy were more of a driver, the fact that we’re doing this well against such headwinds argues particularly well for the future.

* * *

While Europe as a whole has proven very strong, that unfortunately doesn’t hold true for our Spanish operations . . . .

146. Defendant Rice touted yields for European itineraries as the Company headed into

2011:

Virtually all of our products showed solid improvement, especially Alaska and the Caribbean. Yields for European itineraries also improved, despite significant increases in capacity and currency pressures. On a constant currency basis, our net yields performed even better improving 7.2%.

* * *

Moving on to the booking environment, demand for our brands continues to be stable and remarkably consistent, while showing a trend of gradual improvement. Book to load factors are higher than same time last year for the fourth quarter, and for all four quarters of 2011. As you can see from the balance sheet, customer deposits are running about 26% higher than the same time last year. . . . 2011 is also off to an encouraging start.

* * *

Based on the early signs for 2011, we expect our yields to continue to improve at a pace similar to 2010. And although I would caution it is still very early, current trends point to yield improvement in all four quarters, with the greatest upside opportunity during the summer months. Now I’d like to provide you with our updated forward guidance.

* * *

You are most likely interested in guidance for 2011. I need to again caution that it is still very early, but we did want to provide you with some color. First quarter bookings are off to a solid start, and at today’s exchange rates, we are estimating yield improvement of between 2% to 4%. Our current thinking is that the second and third quarters should provide the greatest opportunity for yield improvement in 2011. Our early projections for the year are that yields will continue to improve in 2011 at a rate fairly similar to 2010.

* * *

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Accordingly, based on current fuel prices and currency exchange rates, we are encouraged that 2011 could be a year of record profits for our company. . . .

147. In addition, Defendant Hanrahan commented positively on the indications for the

2011 Europe season:

Daniel Hanrahan – Royal Caribbean Cruises Ltd. – President and CEO of Celebrity Cruises

*

During the third quarter, we had healthy demand for all of our products with both Europe and Alaska performing particularly well. Both products experienced healthy [close and] demand and will finish up the quarter better than what we thought on our previous call. Booking for Europe held up well in both our Solstice and non-Solstice Class ships. And for the first time in the brand’s history, we will sail with a higher percentage of guests coming from outside the US on our European products.

*

. . . indications for our 2011 Europe and Alaska season are encouraging and contributing to the yield improvements Brian mentioned. During our second and third quarters combined we’ll have over 60% of our capacity sailing across these two products. We’ll have all four Solstice Class ships in Europe after Silhouette debuts in July, as well as our Solsticized Constellation. Brian?

148. During the question and answer session that followed their opening remarks,

Defendants assuaged the analysts and investors that the Company was positioned to handle

competitors and Europe would be able to absorb the Company’s rapid increase in capacity in that

region:

Felicia Hendrix – Barclays Capital – Analyst

Okay. Layered on top of that, though, with the industry increasing so much, I was just wondering, and I know it’s early, but if you could comment on your view of what it might look like for both European source and US source, in terms of the additional competition that will be there?

Adam Goldstein – Royal Caribbean Cruises Ltd. – President and CEO of Royal Caribbean International

Really all I can tell you at this point is, of course, is that we’re very aware of the overall competitive environment and our own increasing capacity. We’ve been successful in growing our volumes, of sourcing from the different priority markets

58


that we have in Europe and we’ve remained pleased at the interest of Americans who also go on to our products over there. So, we expect a competitive market environment as it has been, and our intention is to compete successfully in that environment, but we’re not going to be able to say anything more in detail, really, until we get a couple of quarters closer to the action.

Felicia Hendrix – Barclays Capital – Analyst

Okay.

Richard Fain – Royal Caribbean Cruises Ltd. – Chairman and CEO

And Felicia, I think although -- there is a big increase this year, you’ve seen -- we’ve all seen that happen in the past, where we’ve had years where there’s been a lot more growth, particularly in the European market, and one of the nice things about cruising is that we have the ability to operate different itineraries, go to new and different places, and source people from different markets. And so, as we say, the forward booking patterns give us a fairly high degree of confidence that, in fact, Europe will be able to absorb that capacity, as it has in the past, and with reasonable response despite the relatively rapid increase in one given year.

149. Defendants Hanrahan also commented on the strength of European itineraries for the

next year:

Sharon Zackfia – William Blair & Company – Analyst

Hello. Good morning. As we look forward to 2011, I was wondering if you could talk about, regionally, if you’re seeing strength in particular itineraries? And separately, whether there is a significant shift in your capacity and where it is sailing next year?


Sharon, it’s Dan. Yes, as I commented earlier, we have seen early signs that Europe and Alaska are strong next year, and we’re very pleased with that. It is early. You know, Adam commented about the fact that we’re going to -- we’re on our way to 50% of our source is coming from international markets. So those are -- those are the early trends we see, and it’s what’s prompted us to give the yield guidance that we’re projecting for next year at this time.


Is the actual capacity by region fairly similar next year, or is there a material shift there?

59



No. It’s pretty similar to what it is. Both brands are going to be bigger in Europe next year. Adam said that we have eight ships in Europe. We’ll have five. So, both of us are growing. When Silhouette comes out next year, which will be our newest Solstice Class ship, it will go right into service in Europe. So we are seeing capacity increase in Europe. But overall, when you look at the entire year, our capacity mix is pretty similar to what it was this year, but we are seeing growth in Europe.

150. Also, on October 26, 2010, Royal Caribbean filed its quarterly report for the third

quarter of 2010, the period ended September 30, 2010, on Form 10-Q with the SEC. The 2010 third

quarter 10-Q reaffirmed the financial results and statements announced in the press release and

conference call in the ¶¶144-149 above. In addition, the Form 10-Q stated in pertinent part:

While recognizing it is still too early to provide definitive guidance, early indications are encouraging. At today’s exchange rates, we expect full year 2011 Net Yields to increase by a similar proportion to 2010. We also noted that our business is seasonal and that the biggest yield declines caused by the recession impacted the second and third quarters more than they impacted the first and fourth quarters. As a result, we expect that the most meaningful yield recovery in 2011 will occur correspondingly during those same two summer quarters. We anticipate Net Yields in the first quarter of 2011 to improve in the range of 2% to 4%.

151. Moreover, Defendants Fain and Rice signed Sarbanes-Oxley (“SOX”) certifications,

which stated in pertinent part:

I have reviewed this quarterly report on Form 10-Q of Royal Caribbean Cruises Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as

60


defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

* * *

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

* * *

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

152. The market reacted positively to Defendants’ statements regarding the Company’s

third quarter 2010 financial results and preliminary 2011 guidance. As a result of Defendants’

announcements, the price of Royal Caribbean stock rose $5.08 to close at the artificially inflated

price of $40.23 on October 26, 2010.

153. Analysts also commented positively on the Company’s outlook for 2011. For

example:

(a) On October 26, 2010, William Blair & Company reiterated its “Outperform”

rating of Royal Caribbean stock in a report that stated, in pertinent part: “Bookings remain healthy,

with booked load factors higher than last year for the fourth quarter (driven primarily by stronger-

than-expected close-in bookings) and for all four quarters of 2011, with pricing positive in all four

quarters of 2011 as well.”

61


(b) On October 28, 2010, Terra Markets issued a report upgrading its

recommendation of Royal Caribbean shares to “Buy.” The report stated, in pertinent part: “We

believe that impressive 2011 guidance has brought RCL back into the “game” with a more appealing

story behind it.”

(c) On October 29, 2010, Argus Research upgraded it rating of Royal Caribbean

stock from “Hold” to “Buy” in a report stating: “Royal Caribbean’s strong 3Q10 earnings and

positive outlook reflect improving cruise demand and pricing.”

154. At the same time Defendants falsely touted Royal Caribbean’s prospects for 2011 to

the market, thereby artificially inflating the Company’s stock price, Defendants Fain, Goldstein, and

Hanrahan unloaded significant quantities of stock resulting in millions of dollars in proceeds.

Indeed, in the week following the Company’s announcement of robust projections for 2011, they

sold a combined 352,877 shares of common stock for $14,432,610.

155. For the reasons stated above in the Substantive Allegations section, and as further

detailed herein, the statements contained in October 26, 2010 press release, conference call, and

2010 third-quarter Form 10-Q, which touted among other things, the Company’s 2011 EPS, which

would exceed its previous record, its profitability momentum moving into 2011, and the strength of

Europe for 2011, were false and misleading when made or omitted material facts to make such

statements not false or misleading because:

(a) in an effort to gain market share, the Company had deployed an excess of

ships to Europe, including the Mediterranean, for 2011, resulting in a surplus of capacity in the

region (see , e.g. , ¶¶59-67);

(b) demand for European itineraries was not strong (see , e.g. , ¶¶78-79);

62


(c) during the third quarter of 2010, it was evident from weekly and monthly sales

reports that the Company was “behind the eight ball” for European cruises for 2011 and was not on

track to meet internal expectations, including forecasts for pricing and inventory ( see , e.g. , ¶¶78-79);

(d) profits for 2011 were not better than expected ( see id. );

(e) booking patterns did not indicate that Europe could absorb the excess capacity

that the Company had put in the region ( see , e.g. , ¶¶59-67; 78-79);

(f) the Company’s rosy statement that it “expects 2011 EPS to exceed its

previous record of $3.26 per share” was unreasonable at the time it was made based on then-known

information (see , e.g. , ¶¶59-79); and

(g) the Company’s third quarter Form 10-Q was materially false and misleading

because it failed to disclose (in violation of Item 303 of regulation S-K) these materially adverse

conditions to the market.

156. On January 27, 2011, Royal Caribbean announced its fourth quarter and full year

2010 results, as well as its earnings guidance for 2011. The release stated in pertinent part:

MIAMI - January 27, 2011 - Royal Caribbean Cruises Ltd. (NYSE, OSE: RCL) today announced better than expected fourth quarter and full year 2010 results and provided earnings guidance for 2011.

*

• EPS is expected to be between $3.25 and $3.45 for the full year and $0.10 to $0.15 for the first quarter of 2011, based on current fuel prices and currency exchange rates.

“These improved results reflect the strong reception our new ships have received along with the solid branding our different cruise brands have enjoyed,” said Richard D. Fain, chairman and chief executive officer. Fain continued, “WAVE is off to a solid start and supports our earlier confidence in meaningful pricing recovery and record financial performance in 2011.”

*

2011 Outlook

63


The company reported that early “WAVE season” bookings have been encouraging and booked load factors and average per diems are ahead of same time last year. On an as reported basis, the company expects net yields to increase between 4% and 6% for the full year and 2% to 3% for the first quarter of 2011.

* * *

Based upon the above and current fuel prices and currency exchange rates, the company expects full year EPS will be between $3.25 and $3.45 per share. “Our company continues to focus on costs and improving its financial performance,” said Brian J. Rice, executive vice president and chief financial officer. “This focus, combined with the improving pricing power of our brands should generate significant earnings opportunities as we move into 2011 and beyond.”

157. Also, on January 27, 2011, the Company hosted a conference call with various

securities analysts. Defendants Fain, Goldstein, Hanrahan, and Rice participated in the call. On the

call, the Individual Defendants touted bookings and reiterated guidance for 2011. In his opening

remarks, Defendant Fain stated in part:

Looking to 2011, the Wave period is off to a good start. Our revenue management systems are actually remarkably good at discerning trends in consumer demands, and we saw this trajectory taking shape last fall. That’s why we were able to project that 2011 would be such a record year.

Since then, our bookings have continued roughly along the path we expected, with maybe a slight upward bias and the strong start to Wave has confirmed our expectations. In addition to economic influences, the importance of strong brands performing well is often relegated to a subordinate role in conference calls such as these. But in fact, they are the real drivers of our long-term success.

158. In addition, Defendant Rice explained that the strength in demand was consistent with

the Company’s expectations:

Brian Rice – Royal Caribbean Cruises Ltd. – EVP and CFO

*

Moving on to the booking environment, we are still early in the Wave season but the strength of demand continues to be consistent with our earlier expectations. Last week we had the best booking week in our Company’s history as measured by both guest booking volumes and revenue.

64

*


Adam and Dan will provide more color at the brand and product level, but overall, the demand environment remains solid and we are projecting another year of healthy yield recovery.

* * *

Our EPS guidance for the first quarter is between $0.10 and $0.15 per share.

* * *

Our guidance for earnings per share is between $3.25 and $3.45 per share. . . .

159. Defendant Goldstein also touted the Company’s performance during the “Wave

period”:

Adam Goldstein – Royal Caribbean Cruises Ltd. – President and CEO, Royal Caribbean International

* * *

All of these capabilities benefit from the incorporation of the latest marketing technology and all of them are facilitating our global expansion. As Richard and Brian have noted, the Wave period is off to a promising start.

* * *

We continue to benefit from [close in bookings] where late volume is needed and our newer products continue to sell at premium pricing to the relevant cruise competition.

160. In the question and answer session that followed opening remarks, Defendant Rice

touted the Company’s bookings and numbers for all four quarters:

Steve Wieczynski – Stifel Nicolaus – Analyst

Good morning, guys. I guess the first question, on your last call you basically indicated the first-quarter yield, you were expecting 2% to 4% up. And now you have revised that down I guess, just the top end, by 100 basis points. So what really caused that to come down?


Steve, the first-quarter ticket revenues are very consistent with our previous guidance. The bookings continue to come in quite strongly as we alluded to.

* * *

65


Felicia Hendrix - Barclays Capital - Analyst

I have a question on your full-year guidance which on a constant currency basis is basically unchanged. When you had given that guidance before, you guys had talked about half of the increase in your full-year outlook was coming from the new hardware and then the other half was coming from what you were seeing in the industry.

Just a little bit surprised that that number is unchanged on a constant dollar basis just given what you’re saying about the Wave, about bookings, about what some of your competitors have been saying about the industry. I was wondering if you could address that.

Brian Rice - Royal Caribbean Cruises Ltd. - EVP and CFO

Felicia, at the sake of sounding redundant and almost boring at this point, I think we’ve got a very good handle on the demand environment and it is been remarkably consistent. We expected to have a record booking week last week in our forecast and it turned out to be so.

* * *

Assia Georgieva - Infiniti Research - Analyst

Okay, thank you. And my second question -- I will jump forward to Q2 -- we’re obviously in a very active booking season for both Q2 and Q3, but still early maybe a little bit for Q3. Could you comment what Q2 trends are given that we expect a much higher seasonality and greater profitability burden on both Q2 and Q3?

* * *

Brian Rice - Royal Caribbean Cruises Ltd. - EVP and CFO

But I think clearly the summer will be above the average with probably Q3 being better – the best of the three – I’m sorry, the best of the two quarters during the summer. And I think the numbers are shaping up as expected in all four quarters at this point.


2010 financial results and 2011 guidance. For example:

(a) On January 27, 2011, Deutsche Bank reiterated its “Buy” rating for Royal

Caribbean bonds in a report that stated, in pertinent part: “In mid-January, RCL experienced its best

week ever in terms of booking volumes and revenues. This positive metric continued in the

66


following week, indicating a robust season ahead.” The report went on to state: “Today’s optimistic

tone on the call is clearly an indication that fundamentals are solid heading into 2011.”

(b) On January 28, 2011, Susquehanna International Group (SIG) reiterated its

“Positive” rating following a “good 4Q10 release and favorable 2011 outlook.

(c) That same day, J.P. Morgan issued a report reiterating its “Overweight” rating

for Royal Caribbean stock based, in part, on “solid 4Q10 results” and “solid operating momentum

and attractive valuation.” The report noted: “RCL reported that its weekly booking patterns have

gotten progressively stronger since the beginning of January,” and stated: “We continue to remain

positive on RCL and cruise fundamentals . . .”

162. On the day after Defendants issued record guidance for Royal Caribbean for 2011,

Defendant Fain unloaded 200,000 shares of Royal Caribbean common stock at a price of $46.63

(one of the highest prices the stock reached during the Class Period) for proceeds of $9,326,000.

Likewise, within the approximately two-week period that followed, Defendants Rice, Goldstein, and

Hanrahan also took advantage of the artificial inflation of the Company’s stock price and sold a

combined 117,099 shares of common stock for $5,497,704 in proceeds.

163. On February 24, 2011, after the market closed, Royal Caribbean filed its annual

report for fiscal year 2010, the period ended December 31, 2010, on Form 10-K with the SEC. The

2010 Form 10-K reaffirmed the financial results and statements announced in the press release and

conference call held on January 27, 2011. In addition, the 2010 Form 10-K made the following

statements:

During 2010, we saw a slight improvement in the economy which led to pricing increases as described below. Although we are not back at pre-recession levels, the current demand for our brands is improving and we expect this trend to continue through 2011. Profitability momentum and yield accretion are also quite strong with our newest vessels performing well and

67


our management team effectively controlling costs. . . . . Even though the economy remains a challenge our outlook remains encouraging.

• Our international expansion also remains a key focus going into 2011 and we continue to invest in mature markets while strategically focusing on developing markets. As a result, we are experiencing an increased demand in these markets.

• On January 27, 2011, we announced the following guidance for the full year and first quarter of 2011:

. Full Year 2011

• We expected Net Yields to increase in the range of 4% to 6% compared to 2010. On a Constant Currency basis, we expected Net Yields to increase in the range of 4% to 5% compared to 2010.

• [w]e expected full year 2011 earnings per share to be in the range of $3.25 to $3.45.

• [w]e expected first quarter 2011 earnings per share to be in the range of $0.10 to $0.15.

164. Moreover, Defendants Fain and Rice signed SOX certifications as set forth in ¶151

above.

165. As a result of the statements made in Defendants’ Form 10-K, the price of Royal

Caribbean stock rose to close at an artificially inflated price of $44.15 on February 25, 2011.


detailed herein, the statements contained in the January 27, 2011 press release and conference call,

and the 2010 Form 10-K, which touted among other things, the Company’s 2011 EPS, expectations

for increased demand in European markets, and the Company’s strong bookings, were false and

misleading when made or omitted material facts to make such statements not false or misleading

because:

4] M.]


(a) in an effort to gain market share, the Company had deployed an excess of

ships to Europe, including the Mediterranean, for 2011, resulting in a surplus of capacity in the

region (see , e.g. , ¶¶59-67);

(b) by January 2011, it was evident from then-available booking data that cruises

in the Eastern Mediterranean region scheduled for the second quarter 2011 would perform poorly

and were not “on track” to meet internal expectations ( see , e.g. , ¶¶82-86);

(c) pricing softness was already an issue for Royal Caribbean in the Eastern

Mediterranean region ( i.e. , ships such as Brilliance and Voyager were $1.1 million below internal

expectations and were not selling enough tickets nor selling at the price projected) ( see , e.g. , ¶84);

(d) demand for European itineraries was not strong (see , e.g. , ¶¶78-79; 82-86);

(e) bookings were not coming in strongly and numbers were not shaping up in all

four quarters as Defendant Rice stated (see , e.g. , ¶¶82-86);

(f) the record guidance issued by the Company for 2011 was unreasonable at the

time it was made based on then-known information ( see , e.g. , ¶¶59-79; 82-86); and

(g) the Company’s 2010 Form 10-K was materially false and misleading because

it failed to disclose (in violation of Item 303 of regulation S-K) these materially adverse conditions

to the market.

167. On April 28, 2011, Royal Caribbean reported its first quarter 2011 results and updated

its guidance for the remainder of 2011. The Company’s press release stated in pertinent part.

MIAMI – April 28, 2011 - Royal Caribbean Cruises Ltd. (NYSE, OSE: RCL) today announced better than expected first quarter results and updates guidance for the remainder of 2011.

Key Highlights

* * *

2011 Guidance

69


* * *

The effects of recent geopolitical events in Northern Africa and Japan have also been partially offset by improvements in the company’s other itineraries. As a result, full year EPS guidance has been reduced by $0.15 per share to a range of $3.10 to $3.30.

“The year started off with a roar - strong bookings, low costs and solid profits - and in the first quarter every one of our brands exceeded its forecast,” said Richard D. Fain, chairman and chief executive officer. Fain added, “Unfortunately, the events in Northern Africa and Japan have turned what was shaping up as a spectacular year into merely a very good one. Nonetheless, other than adjustments for fuel pricing, our earnings guidance for the year is essentially intact despite these dramatic geopolitical events. The demand for the majority of our products has remained quite strong and even the impacted itineraries have begun to improve.”

First Quarter 2011 Results

* * *

The company saw improvement in both ticket and onboard revenue yields and across all major product groups.

* * *

2011 Outlook

The company provided the following updates to its forward guidance:

* * *

As compared to prior guidance, three significant factors have influenced the company’s outlook on yields: geopolitical events, the weakening of the U.S. Dollar and increased tour activities.

Geopolitical: Bookings at the beginning of the year in the Mediterranean and in Asia were quite strong. However, events in Northern Africa led to itinerary modifications of 63 sailings and the tragic series of calamities in Japan led to itinerary modifications of 21 sailings. The combination of these events is expected to have a direct negative impact on the company’s yields of approximately 1% for the full year.

* * *

The company also noted that it observed a broad slowdown in bookings for Mediterranean sailings following the unrest in Northern Africa. These booking volumes have now returned to normal levels as a result of reduced pricing. The effect of this booking disruption has been largely offset by the company’s other product

70


groups, including Caribbean and Alaskan itineraries, which continue to show better than expected year-over-year improvement.

168. Also, on April 28, 2011, the Company hosted a conference call with various securities

analysts. Defendants Fain, Rice, Goldstein, and Hanrahan participated in this call. On this call,

Defendants explained the revision in guidance as being attributed to “geopolitical factors” and

assuaged investors that the Company’s “risk mitigation and diversification efforts” were “working as

they should to reduce earnings volatility and to insulate our shareholders.” Defendant Fain stated in

pertinent part:

Revenues were better than expected, costs were well controlled and that combined with our hedging program led to a blow-out quarter. It shows the upside potential for even modest improvements. I would like to take a moment actually to enjoy that progress before we talk about the rest of the year. Now I was hoping that the first quarter improvements would continue for the full year and for the most part they still are. We have asked obviously been confronted though with some significant challenges from fuel and from geopolitical events. But it is profoundly rewarding to be able to demonstrate our people’s ability to deal even with those challenges.

The bottom line is we still expect 2011 to be a great year. Almost as strong as we had originally hoped. Now, I do have to admit that I hate bemoaning these geopolitical events and characterize them as frustrating, given the suffering they have caused for so many. The events are tragic by any stretch of the imagination and for the many people living through them, they are unfathomable.

Our thoughts and our prayers are with all of them. But as it relates to our business operations, by becoming a more international Company we are more broadly exposed to events that occur throughout the world. The plus side of that is that our exposure to any one of them is much more limited than it has been in the past. For example, previously, a Caribbean hurricane could affect the majority of the fleet all at once.

But obviously that is less so the case today. Diversification reduces our risk from any one event but it also means that we will feel some impact from a broader range of events. Now as you can see from our forward guidance, Japan and Egypt have caused adjustments to our full-year outlook. But our more international fleet allocation has afforded us the opportunity to offset the med booking disruptions by the strength for example in Alaska and the Caribbean.

Overall, our risk mitigation and diversification efforts, whether they be through itinerary planning or fuel hedging, are working as they should to reduce earnings volatility and to insulate our shareholders. And given the magnitude of the recent

71


worldwide events and the run-up in fuel pricing, I think a $0.15 reduction and full-year earnings would constitute a surprisingly good result. I have probably already spent too much time talking about changing events so let’s talk about what has not changed.

*

The recent geopolitical events are tough facts of life but I think we’re managing through them effectively.

169. Defendant Rice further explained the impact of the events in northern Africa and

Japan but comforted investors that the Company was experiencing improvements in ticket revenues

and that bookings had returned to normal levels:

In the first quarter we generated net income of $91.6 million or $0.42 a share. Our operating income improved by $58 million, or by just over 63%. Net yields improved 4% on an as reported basis and 2.8% on a constant currency basis. We saw improvements in both ticket and onboard revenues and across all of our major product groups. Close in bookings came in stronger than expected particularly in the Caribbean and Brazil.

*

While the situation is still fluid our best estimate is that the total direct impact from the combination of these geopolitical events will be approximately $0.20 per share and will reduce our yields by about 1%. Not included in these figures are the indirect costs associated with discounting we needed to do to stimulate bookings for Mediterranean itineraries is an indirect consequence of the turmoil in the region. Prior to the Libyan uprising, Mediterranean bookings were running ahead of the same time last year despite significant increases in capacity.

And as many of you saw in your research, during the months of February and March, demand softened considerably. Particularly out of the US and UK markets. Over the last few weeks however, bookings have returned to normal levels albeit at reduced pricing. Despite all of this, I think it is important to note that we still expect our European product line in total to finish the year with yield increases in the mid-single digits.

*

On slide six we thought it would be helpful to provide you with an EPS bridge reconciling our updated guidance to the guidance we gave back in January. At that time we provided initial guidance for the year of $3.25 to $3.45. As I mentioned previously, the direct impact of the geopolitical events is expected to be about $0.20. At today’s pricing fuel expense, net of our hedges cost us another $0.30.

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170. In addition, Defendant Goldstein continued to tout the booking activity for the

Company’s European program and the substitutions for all scheduled calls in Egypt for the

remainder of the year:


*

Meanwhile in Europe, the succession of events in Tunisia, Egypt and Libya have of course had an impact on our 2011 Mediterranean program. As with Asia, we are pleased with the ability of our sales and marketing colleagues in Europe to driving encouraging booking activity for our 11-ship Europe program this summer. We have announced substitutions for all scheduled calls in Egypt for the remainder of the year. We have also announced the relocation of Navigator of the Seas from the Mediterranean to the Caribbean for the Winter 2011, 2012 season.

171. In the question and answer session that followed Defendants’ opening remarks, the

Individual Defendants allayed analyst concerns regarding the Company’s revised guidance by

conveying that the market would come through, pricing was stable, and the Company was offsetting

the impact of the problems in the Mediterranean with that of other regions, such as Alaska and the

Caribbean:

Tim Conder – Wells Fargo Securities – Analyst

Adam or Dan, can you talk about how the demand from the UK is relative to the continent and then if there’s any way to exclude the impact of what’s going on in the and ME&A and in relation to that too maybe contrast the cruise industry demand, what you are seeing relative to that of Thomson and some of the other more land focused tour operators?


Wow. I don’t know how many questions that actually aggregated to, Tim. I think probably more than two. Well, the UK market as you know is a very strategic market for us and it is a market that is actually the primary source market for our European cruise programs. And we expect to have a solid successful season from the UK market. We had gotten off to a good start for the market and we believe that the customers there will continue to see the value of our cruises throughout the Mediterranean and Baltic region as the season goes on so it is one of the markets that

73


we are counting on for our sourcing of the program the summer and we expect the market to come through for us.

*


Good morning. I apologize if I missed this but did you comment as to whether or not Mediterranean pricing was leveling off? And then if you could give us some idea as we look forward to the back half of the year, are we expecting yields to then peak in the third quarter because of the seasonality of some of the issues that you were talking about or is it more of a fourth-quarter peak and yield?


Sharon, the Mediterranean we are still discounting. We have got the volume back to where it needs to be but it is discounted from before the Libyan situation. But the volume is back and our yields in aggregate from the other products are substantially offsetting that discounting.

We are looking at peak yields in the third quarter in part because of the impact of the items that we talked about, but also as we alluded to on our last call, the third quarter is probably where we have the most ground to make up to pre-recession levels.


Okay and then I guess just to clarify. When I was asking about pricing in the Mediterranean I was wondering if the pricing is continuing to go down or now that you are seeing the bookings reestablish themselves if you are seeing some sort of level ground there? I understand it is discounted versus couple of months ago.


Okay, I’m sorry. At this point we are not adding discounts other than the normal tactical things that go on in the marketplace. But I think our pricing is more back in equilibrium with the demand environment. And relatively stable at this point.

* * *

Robin Farley – – Analyst

Great, thanks. I wanted to clarify, there’s a lot of moving parts obviously in your guidance, so just to clarify so we can think about just cruise demand. And excludes Pullmantur because that is not really meaningful to cruise yields and then currency. If your prior guidance was constant currency of up 4% to 5%, if we exclude the additions of Pullmantur, is the bottom end of your constant currency yield guidance now, is the range now 2% to 4%, in other words the bottom end of the range looks like it’s going down by 200 basis points excluding currency in Pullmantur. And I just

74


want to understand where the other 100 basis points, you mentioned the other 100 basis points from the disruptions from geopolitical events, but it looks like the bottom end of the range may be going down by 200 basis points.

Dan Hanrahan – Royal Caribbean Cruises Ltd. – President & CEO, Celebrity Cruises

Robin, I think if you go back on the website and look at slide five. We have done our best to really try to reconcile this. I think the bottom line here is if you take currency out, and he takes Pullmantur tour expansion out, and you take the events specifically the very direct impact of Japan and northern Africa, just the direct part, everything else is about the same in aggregate as it was in January. That the Mediterranean discounting has put a drag on yield but we have been able to offset that with Alaska, Caribbean, Bermuda and other products that Adam and Dan talked about. In terms of the mechanics of the number I think we tried to lay that out as best we could on the slide.

* * *

Janet Brashear – – Analyst

Okay, thank you. And my second question is three months ago when you were looking at Q2 during a key booking timeframe for that quarter, how have your expectations changed relative to today’s guidance? I imagine they have come down can you give us the magnitude?

Dan Hanrahan – Royal Caribbean Cruises Ltd. – President & CEO, Celebrity Cruises

Again, I think the best way to say it is that the Mediterranean became softer as a result of Libya. Obviously the events in Asia and Egypt and Tunisia had an impact, I would say all those product lines are down from our expectations when we had our last call. But our expectations related to the Caribbean, Alaska and the other product lines are the same to slightly better. And the net effect of it is, excluding the direct impact of Egypt, Tunisia and Japan, that net is all about the same as a was three months ago.

* * *

172. On the same day, Royal Caribbean filed its quarterly report for the first quarter of

fiscal year 2011, the period ended March 31, 2011, on Form 10-Q with the SEC. The 2011 first

quarter 10-Q reaffirmed the financial results in the press release and conference call above. In

addition, it stated in pertinent part:

. Outlook Full Year 2011

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• [w]e expect full year 2011 earnings per share to be in the range of $3.10 to $3.30.

. Second Quarter 2011

• [w]e expect second quarter 2011 earnings per share to be in the range of $0.40 to $0.45.

173. Moreover, Defendants Fain and Rice signed SOX certifications as set forth in ¶151

above.


comments that it had geopolitical events in hand and was experiencing stable pricing and demand

and positive second quarter and 2011 full-year guidance. For example:

(a) On April 28, 2011, Hudson Securities noted that RCL “put up a monster

quarter” and reiterated its “Buy” rating of RCL shares: “All in all, we thought RCL made a lot of

lemonade out of the lemons it was dealt with this quarter and for the balance of 2011.”

(b) On that same day, Deutsche Bank issued a report maintaining its “Buy” rating

for Royal Caribbean bonds and reported that the Company experienced “a solid start to 2011 thanks

to stronger booking volumes” and “demand exceeding expectations.”

(c) Additionally, on that same day, Susquehanna Financial Group reiterated its

“Positive” rating for Royal Caribbean stock in a report noting “overall cruise demand remains

healthy.”

(d) On April 29, 2011, Terra Markets AS reiterated its “Buy” recommendation in

a report stating: “RCL reported solid Q1 figures yesterday and provided encouraging guidance for

the rest of the year.”

175. Defendants’ positive statements regarding management of the situation in the

Mediterranean, as well as the resulting positive analyst commentary, made their way into the market,

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offsetting Defendants’ news that it was revising guidance, and caused the stock price to remain at an

artificially inflated price of $39.82.


detailed herein, the statements contained in the April 28, 2011 press release and conference call and

2011 first-quarter Form 10-Q, which touted, among other things, 2011 would be a great year and the

Company was effectively managing the impact of geopolitical events to reduce earnings volatility

and insulate shareholders, were false and misleading because:

(a) in an effort to gain market share, the Company had deployed an excess

amount of ships to Europe, including the Mediterranean, for 2011, resulting in a surplus of capacity

in the region (see , e.g. , ¶¶59-67);

(b) by January of 2011, it was evident from then-available booking data that

cruises in the Eastern Mediterranean region scheduled for the second quarter 2011 would perform

poorly (see , e.g. , ¶¶82-86);

(c) cruises scheduled for itineraries in the second quarter 2011 were not “on

track” to meet internal expectations ( see , e.g. , ¶¶89-96);

(d) pricing softness was already an issue for Royal Caribbean in the Eastern

Mediterranean region (see , e.g. , ¶¶82-86; 89-96);

(e) in March of 2011, Royal Caribbean was experiencing a “broad shortfall across

products” and the largest slowing was in Europe and on the Oasis and Allure ( see , e.g. , ¶¶91-94);

(f) by April, the “long Med” and “seven-night Med” cruises were suffering ( see ,

e.g. , ¶¶95-96);

(g) the Company’s bookings were not strong and were not meeting forecasts with

respect to Europe, including the Mediterranean ( see , e.g. , ¶¶89-96);

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(h) the Company’s 2011 guidance was not attainable when made and the

announced guidance reduction was insufficient at the time it was issued based on then-known

information (see , e.g. , ¶¶59-79; 82-86; 89-101);

(i) the Company was not effectively managing the impact of geopolitical events

and had failed to insulate shareholders ( see , e.g. , ¶¶89-101); and

(j) the Company’s 2010 Form 10-K was materially false and misleading because

it failed to disclose (in violation of Item 303 of regulation S-K) these materially adverse conditions

to the market.

VII. THE TRUTH IS REVEALED

177. Despite the Company’s previous announcements that (i) bookings for the 2011 season

were on track, (ii) it would have “record” results for 2011, and (iii) Defendants were effectively

managing the impact of the political turmoil in the Mediterranean, after the market closed on July

27, 2011, Royal Caribbean revealed that its 2011 guidance was inflated when it issued a “kitchen

sink” press release attached to a Form 8-K, disclosing that it was lowering guidance due to, among

other things, continuing pricing softness for Eastern Mediterranean sailings. The press release stated

in pertinent part:

(1) Management identified an error in the previous accounting treatment of interest expense relating to its amortization of certain financing fees and has revised its past financial statements to reflect the correct accounting (the “Interest Expense Revision”).

(2) Second quarter EPS was 47¢ before the Interest Expense Revision. After adjusting for the revision, the company reported earnings of 43¢ per share which is the midpoint of previous guidance range of 40¢ to 45¢.

(3) Excluding the Interest Expense Revision, full year 2011 EPS guidance is now expected to be $3.05 to $3.15, reflecting a 10¢ reduction to prior guidance on continuing pricing softness for Eastern Mediterranean sailings, partially offset by strong cost savings. The Interest Expense Revision is forecasted to reduce 2011 EPS by 20¢ resulting in full year 2011 EPS guidance of $2.85 to $2.95.

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* * *

Full Year Guidance:

• While most of the company’s product groups are performing at or above prior expectations, ongoing pressures from events in the Eastern Mediterranean have reduced Constant-Currency Net Yield expectations for the year by 150 basis points since April;

*

• Full year 2011 EPS is expected to be within a range of $2.85 to $2.95. Excluding the Interest Expense Revision, EPS expectations would have been $3.05 to $3.15 per share.

*

“Since our last guidance, the turmoil in the Eastern Mediterranean has caused pricing to deteriorate even further for this region. Fortunately, our other markets are performing exceptionally well and we have been able to take our cost reduction to the next level. As a result, profitability is still growing nicely year-over-year, but these disruptions have undermined our expectations for even better performance this year,” said Richard D. Fain, chairman and chief executive officer. Fain continued, “Our long-term outlook remains highly positive and, with a strengthening balance sheet and solid liquidity, we are pleased to reinstate our dividend. It is our intention to continue paying quarterly dividends at this level or higher as our performance improves and we work toward our goal of returning to Investment Grade.”

*

Second Quarter 2011 Results

*

• Geopolitical: The ongoing conflicts in the Eastern Mediterranean and its spillover effects continues to create hesitation around travel to the region. Some of this was already evident at the time of the company’s last guidance. However, during the second quarter, the civil unrest in the Eastern Mediterranean expanded to other areas including Syria and Greece and the level of concern amongst travelers grew as tensions in the region dominated the headlines. This has resulted in a full year yield reduction of approximately 150 basis points versus April guidance. Net Yields for the Mediterranean are now expected to be down approximately 4% for the year, which is in stark contrast with the rest of the company’s portfolio. The impact related to the events in Japan was reasonably clear by the time of the last guidance. The impact on bookings was immediate, but the situation has now stabilized. The guidance for 2011 has not changed materially from previous guidance and the outlook going forward is very positive.

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* * *

The strength of this demand (both rate and volume) reinforces that Eastern Mediterranean pricing softness this summer appears to be geopolitically related and that the economic demand for its products is strong. Further supporting this premise, excluding the Mediterranean, Net Yields for the year are expected to be up approximately 8% (approximately 6% on a Constant-Currency basis).

Forward Guidance Summary

In addition, based on the assumed fuel statistics above, the company provided the following guidance for the third quarter and full year 2011.

Third Quarter 2011 Full Year 2011

EPS $1.85 – $1.90 $2.85 - $2.95

178. On the next day, July 28, 2011, Defendants held a conference call with various

analysts during which they discussed a significant reduction to their 2011 guidance due in part to

pricing softness in the Eastern Mediterranean. On this call, Defendants continued to mislead the

market, blaming the pricing softness on geopolitical events rather than its own problems with

bookings in the region. Indeed, while Defendant Fain recognized the weakness the Company was

experiencing in its Eastern Mediterranean itineraries, he blamed it on “geopolitical changes” stating

that:

The two big changes to our business outlook that we are reporting today are, first of all, the current weakness in our Eastern Mediterranean itineraries . . . . Naturally, our biggest redeployment was to substantially increase Mediterranean sailings because this was the area which showed the greatest promise. Naturally, that market where we expected the biggest improvement is also the market that suffered the most from the geopolitical changes.

* * *

Unfortunately, that situation didn’t last as long as we had hoped. The Arab [Spring] not only failed to stabilize, it continued to fester and the turmoil grew to other countries throughout the region. The result is that, during the quarter, we reached a tipping point and we saw significant declines in our pricing in that area. The net result has been a serious decline in our revenue in what was supposed to be one of our strongest markets. That decline has been painful but to put it in perspective, it’s only amounted to a drop of 2% in our overall yields from what we had expected at

80


the beginning of the year. How many other industries suffer such a plethora of challenges in one year and still only show a 2% revenue impact?

179. Defendant Rice further explained the problems that the Company was experiencing in

the Mediterranean:

. . . The Western Mediterranean was up mid-single digits, but both the Eastern Mediterranean and Asia were down due to the geopolitical events we talked about on our last call. April and May sailings in the Med came in about as we had expected, but we saw further deterioration in close-in bookings for June sailings.

* * *

The biggest changes we’re seeing relate to the Eastern Mediterranean. On our last call, we adjusted our yield guidance as the result of the geopolitical events in northern Africa. Much of this adjustment directly related to sailings deployed away from Egypt and to a much lesser extent, Tunisia. Subsequently, there has been additional unrest in Syria and Greece. If you draw a semicircle on a map from Greece to Syria to Egypt, it is easy to understand why headlines dominating this region would impact demand for the entire Eastern Mediterranean, including Israel and Turkey.

Eastern Mediterranean itineraries will account for 18% of our total capacity in the third quarter and are unfortunately weighing down strong yield performance by most of our other products. Western Mediterranean sailings, in contrast, are expected to have slightly higher yields than last year, which is still encouraging given the large capacity increases in the region.

* * *

Earnings per share for the year are now expected to be between $2.85 and $2.95.

180. Likewise, Defendant Goldstein expressed disappointment over the Company’s

Mediterranean yields:

As Brian and Richard have mentioned, we are pleased that many of our products have generated stronger revenues than we had expected, and also that we have maintained strong cost control and we are disappointed that our Mediterranean yields have turned out to be weaker than we had anticipated three months ago. We have been clear for some time about our strategic intention to build our presence in Europe, to capture at least our fair share of the impressive growth of cruise vacations in the world’s largest holiday market.

The Royal Caribbean International brand has deployed half of our 22 ship fleet in Europe this summer. When we set our 2011 European deployment about 18 months ago, we placed our main emphasis on establishing home ports in our priority

81


markets. This approach includes several ships that we have based in the UK and in the Nordic market, which have performed well this summer. We placed most of our European capacity, however, in Italy and Spain. The geopolitical events of 2011 have had a disproportionate impact on these products, particularly the ships with itineraries in Greece, Egypt and Israel.

181. Defendant Hanrahan also commented on the challenges the Company experienced in

the Mediterranean:

As you have heard, our sailings that operate in the Holy Land Region and in the Eastern Med have been more of a challenge due to the continuing global events. As has been the trend, our Europe product is about 40% sourced from outside of the US and Canada, and we have not seen any significant differences in booking patterns from these main booking markets.

182. In the question-and-answer session that followed, analysts questioned Defendants on

their failure to lower guidance further in April:

Steve Wieczynski – Stifel Nicolaus – Analyst

So you’re basically talking about the Med being down. It looks like it’s going to be down about 4% this year. Really what I’m trying to get at is what has essentially changed from the last time you guys gave guidance back in April to today? Have things materially gotten worse there? I guess what has been the change over the past couple of weeks or maybe over the last month in terms of what you’ve seen in bookings come out of that market?

Brian Rice – Royal Caribbean Cruises Ltd. – EVP, CFO

Sure Steve. I think we gave our last guidance at the end of April. Frankly, bookings for the end of April, beginning of May held their own. We actually met our internal forecast for the months of April and May. Bookings began to slow down I would say kind of mid May. We didn’t have very strong bookings particularly for the Eastern Med in May. We started taking some additional pricing actions, got price -- got the volumes back to equilibrium in June. We’ve actually seen higher year-over-year bookings in July than we did before, albeit at the new discount rates that we implemented in late May and early June.

I think the difference that we’re seeing is initially we saw this isolated predominately to the itineraries that we had changed out of Tunisia and to larger extent Egypt. But as we began to see the protests in Greece, the additional hostilities in Syria, as I said before, if you draw that semicircle around Egypt, Syria and Greece to the north, you’ll see Turkey and Israel are within that circle. Those are the itineraries we’d like to refer to as the Holy Land area that we really began to see additional drop-off.

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As we showed on our slide, we had about 18% of our capacity in that market during the third quarter. So just a continuation of that being a dominant influence in the headlines has caused further deterioration in our forecast.

183. Defendants responded to questions regarding pricing softness in the Mediterranean

and the Company’s 2011 annual guidance:

Kevin Milota – JPMorgan Chase & Co. – Analyst

Good morning guys. I was hoping to talk a little bit about pricing in the Med. Before the event happens, I’m trying to get a sense for what the declines are just in magnitude in terms of pricing for the region and kind of your initial thoughts on potentially how long it could take to regain pricing kind of pre-turmoil in the region. Thank you.

Dan Hanrahan – Royal Caribbean Cruises Ltd. – President & CEO of Celebrity Cruises

It’s Dan. I want to stress that it’s Eastern Med where we’ve had the difficulty. We’ve actually seen some pricing improvement year-on-year for the Western Med.

In terms of how long it will take to get it back, that’s a bit difficult to say right now. As Brian just mentioned earlier, it’s a little bit difficult to say what’s going to happen in 2012. We have seen good reaction to the price declines that we’ve taken. Indications are that, as Richard mentioned, next year that the pricing looks better, but we’re still very, very early days when it comes to 2012 at this point.

But I do want to stress that the Western Med has held up nicely and we’ve actually seen some price increases. It’s just that area that Brian described in Eastern Med.

*

Assia Georgieva – Infinity Research – Analyst

Good morning. Brian, my first question is to you. I’m not a believer in the accounting construct, so let’s ignore the Interest Expense Revision. But I wanted to do a quick reconciliation of what your prior yield guidance or EPS guidance rather was for the year. I think it was $3.10 to $3.30, and we had a $0.04 Q2 beat if we ignore again the accounting idea. So it seems that it should have gone up to $3.14, $3.34. And then with a $0.10 reduction, the new guidance should have been $3.04 to $3.24. It seems the high end of the range though has been reduced by $0.09, $0.10 to $3.15. Could you explain that?


I can try to give you a directional. I think our revenue declines were in the mid $0.40 range if you include both the yield change for the Eastern Med as well as currency

83


impact. We were able to offset about half of that with cost savings. We have a little bit of improvement in fuel, and we’ve had a little bit of improvement in some of our equity pickups below the line. I think if you took all that into consideration, we’d be getting back to about $3.10 as a midpoint. Unfortunately, the interest expense is a reality, and if you take that $0.20 off, you should be getting back to $2.90, which is the midpoint of our current (multiple speakers)


Let’s ignore the interest expense. It seems that the high end, before the Interest Expense Revision, has been reduced by $0.10.


From a business perspective, all-in, we are down about $0.10. You’re correct.

* * *


Assia, if I could just add also, because the Med is getting a lot of obviously for good reason because it affected our guidance, is getting a lot of discussion on this call. I do think it’s important to recognize that the combination of the Eastern med and Asia, which are the two markets that are down, that represents 13% of our inventory. The other 87% is actually doing quite well despite all of the chatter that you’re hearing in the marketplace about sovereign debt crisis and debt ceilings and what not. I think it’s important to recognize that a lot of our products are actually up double digits and people are taking vacations and they really are enjoying our brands.


Brian, I thank you for this clarification and I, as you know, can see the results in the Caribbean and Alaska quite clearly. They’re spectacular, but still we’re talking about the $0.40 revision to earnings per share and a quarterly dividend of $0.10 which amounts to $0.40 of cash outflow a year. So my concern is that at almost 50% net debt to capital, this might not have been the optimal time to reinstate a dividend.

* * *

Adam Goldstein – Royal Caribbean Cruises Ltd. – President & CEO of Royal Caribbean International

We’ve been saying for quite some time that we think the brands that we’re offering, their propositions are resonating in the marketplace. As we’ve emerged from the recessionary environments of two and three years ago, they seem to have an impact in the marketplace. The Caribbean has developed nicely. We’ve obviously fantastic products and services [already] there now. We’ve talked about the changes that have been made in Alaska in the last couple of years. The state has taken a much more

84


active interest in supporting the cruise industry’s development there than what we’ve seen prior to that. The Northeast of the United States seems to recover at least somewhat from the funk that it was in before. It’s nice that these positive developments are emerging at a time that helps us offset some of the impact of what we’ve mostly been talking about with this call with the Eastern Mediterranean.

* * *

Sharon Zackfia – William Blair & Co. – Analyst

Good morning. A couple of quick questions. I appreciate all the color on the Mediterranean this morning. I guess I’m curious with the Western Mediterranean, whether that’s where you expected it to be. I might have assumed coming into the year that perhaps that would’ve been a stronger section as well. I’m just curious if that is a little bit weaker than original plan, how you get comfort that it isn’t something else happening in Europe that’s causing this weakness.


I think, frankly, the Western Med has not performed quite to our expectations. It’s not nearly the impact that we saw in the Eastern Med, but it will be -- the yields actually will be up honestly this year.

I think, in hindsight, there was a tremendous capacity increase in that region. I think it’s a testimony to the efforts that our sales groups, particularly in Europe, have been able to step up and fill that at higher prices, given that impact.

I think one of the things we’ve looked at very carefully, in addition to itineraries, is how are the various source markets doing. When we exclude Mediterranean sailings to get a sense of how the broader, if you will, economic demand is throughout Europe, we were very encouraged in the second quarter. Virtually all of Europe, with the exception of Spain, showed very healthy price increases. As we look more broadly, our bigger markets, particularly the UK, again excluding the Med where we’ve had some noise, the demand has actually been quite strong. So when we look at it that way, we’ve tried to differentiate between, if you will, event demand and economic demand. We felt pretty good about where the economic demand was.

*

Richard Fain – Royal Caribbean Cruises Ltd. – Chairman, CEO

*

If I could add a little more color to that. I think one of the phenomenon that we have experienced regularly is that although we talk about them as though they are totally discreet animals, regions -- there is some impact between regions, people who are a little nervous, for example, about the Eastern Med. That has a knock-on effect on close-buy itineraries such as the Western Med. So we think part of what has resulted

85


in some reduction in where we expect it to be in the Western Med is a very strong reaction to what happened in the East. The further afield you go, the less that impact is. As Brian says, when you start looking towards Great Britain, you start going north towards Germany and the Baltic, they’ve actually been extremely strong. But it’s not unusual that we feel some cross-pollination to nearby regions, like so when we’ve talk about some of these things, we haven’t been as specific. Sometimes we’re talking about the Eastern Med, sometimes the Med as a whole, because you really have to look at these things as not black and white, but six shades of gray.

* * *


Obviously we are aware of how our competitors are performing, and we hold ourselves accountable to a higher yield performance, particularly given the superior hardware we have. I think what we are looking at is the primary driver and it really is the second and third-quarter issue is our overweighting in the Med. If you look at the capacity allocations that the different companies have, as I mentioned in my script, 45% of our inventory is going to be in the Mediterranean this year.

* * *

Robin Farley – UBS – Analyst

Thanks guys. Two questions -- first is on the 150 basis point reduction. I guess that’s the start of your 300 basis point reduction. Can you quantify just kind of roughly what of that change is direct impact from ships that you had to reroute from the Middle East and Japan, which I think is about 4% of your capacity, where there is a direct impact, you know, you had those ships’ folks they had to move, versus just sort the more indirect like other ships where there may be an impact because of more capacity, or it may be demand or it could be -- ships that were indirectly impacted that could be due to any number of reasons. But can you quantify what of the -- either of the 300 basis points since the start of the year or just the 150 basis points here incremental since April is directly impacted, rerouted -- the 4% of your capacity that’s rerouted versus just anything that may be coming in a little bit less than you had expected?


Just for clarity, but constant currency has changed by 200 basis points. The actual business has changed. It would change by 50 basis points from the beginning of the year to the April call and 150 basis points from April to today.


Well those 300 –

* * *

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Richard Fain – Royal Caribbean Cruises Ltd. – Chairman, CEO

Yes, just to be clear, Robin, in the 150 basis points, none of that relates to specific, or essentially none of that relates to specific itinerary changes. All of those specific itinerary changes were -- almost all of them were known at the time of our March call. And so everything that’s happened since then has been due to demand generation for the region.

In terms of how much of the change from the beginning of the year to the end of the first quarter, we -- I don’t have those numbers right in front of us today. We did give them out at the time of the first quarter-call, and Ian can provide you that reference off-line later on.


Okay, wait, the 300 basis points I was referring to was a constant currency ex-Pullmantur, what was originally plus 4 to 5 for the year now being 1 to 2. That was just to clarify the 300 basis points I was referring to.

184. Various analysts noted their shock concerning the Company’s announcements

regarding the Mediterranean and lowered guidance. For example:

(a) On July 28, 2011, Rodman & Renshaw issued a report stating: “RCL pulled a

fast one last night dropping a ‘kitchen sink’ press release after the bell when everyone was expecting

2Q earnings today.” “Obviously, we were quite wrong in our expectations that concerns in the

Med were contained at RCL. ” (emphasis added).

(b) That same day, Terra Markets AS noted, that based on the “disappointing Q2

report,” “we are likely to reduce our EPS estimates and target price.”

(c) On July 29, 2011, Rodman & Renshaw issued a report reducing its target

price and noting that “RCL is likely to spend some time behind the corporate woodshed.” The report

stated that the Company’s new 2011 guidance is “$0.25 lower at the low end and $0.35 lower at the

high end compared to the last round.” Additionally, the analyst reduced its 2012 EPS forecast based

in part on the Company’s lower guidance.

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185. On August 1, 2011, the Company filed its second quarter Form 10-Q, for the period

ending June 30, 2011, which affirmed the financial results contained in the July 27, 2011 earnings

release and, among other things, shed further light on the reduction in guidance as a result of

problems in the Eastern Mediterranean. The second-quarter Form 10-Q stated in pertinent part:

Total revenues increased 10.4% to $1.8 billion in the second quarter of 2011 from total revenues of $1.6 billion for the same period in 2010, primarily due to a 6.6% increase in capacity (measured by APCD for such period) and a 3.8% increase in Net Yields. The increase in Net Yields was primarily due to the favorable effect on our revenues of changes in foreign currency exchange rates, and, to a lesser extent, an increase in ticket prices. These increases were partially offset by the continuing effect of the impact of geopolitical events including the political unrest in Northern Africa and the earthquake and related events in Japan. These events resulted in deployment changes to avoid calling on ports in those areas and pricing reductions to stimulate demand in surrounding areas. The increase in total revenues was partially offset by higher operating expenses primarily due to the increase in capacity and fuel expenses. The increase was also offset by an increase in marketing, selling and administrative expenses primarily associated with our ongoing international expansion. As a result, our net income was $93.5 million or $0.43 per share on a diluted basis for the second quarter of 2011 compared to $53.7 million or $0.25 per share on a diluted basis for the second quarter of 2010.

186. The market was shocked by these announcements concerning price softness in the

Mediterranean. As repercussions of this announcement and resulting analysts’ statements made their

way through the market, Royal Caribbean’s stock price plummeted by approximately 19%, as it fell

from $35.76 per share to close at $28.83 on August 2, 2011, on abnormally high trading volume,

resulting in millions in investor losses.

187. This stock price drop would have been even more significant had Defendants not

buttressed their announcement regarding their failure to meet guidance with positive statements

concerning the Company’s portfolio and news that the Company was reinstating its dividend.

Indeed, after discontinuing its quarterly dividend in the fourth quarter of 2008 and providing no cash

dividend for 2009 and 2010, on July 27, 2011, the Company reinstated the quarterly dividend at a

rate of $0.10 a share. This announcement came in the very same press release that the Company

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revealed the true status of its financials and announced it was reducing guidance due to pricing

softness for Mediterranean sailings. The market reaction and corresponding stock price drop as a

result of this revelation would have been even more significant had Defendants not coupled this

revelation with the announcement reinstating the quarterly dividend.

VIII. LOSS CAUSATION

188. As detailed throughout and further herein, Defendants’ fraudulent scheme artificially

inflated Royal Caribbean’s stock price by failing to disclose that: (a) in an effort to gain market

share, the Company had deployed an excess amount of ships to Europe, including the Mediterranean

for 2011, resulting in a surplus of capacity in the region; (b) demand for European itineraries,

including the Mediterranean, was not steady or strong; (c) throughout the Class Period, the Company

was experiencing lagging bookings and pricing softness for European/Mediterranean itineraries and

was failing to meet internal expectations for bookings and pricing of its 2011 cruises; and (d) as a

result, the record guidance issued by the Company for 2011 was unattainable at the time it was made

based on then-known facts. These false and misleading statements, individually and collectively,

concealed Royal Caribbean’s true financial circumstances and future business prospects, resulting in

the stock being artificially inflated until, as indicated herein, the relevant truth about Royal

Caribbean was revealed. While each of these misrepresentations was independently fraudulent, they

were all motivated by Defendants’ desire to artificially inflate Royal Caribbean’s stock price and the

image of its future business prospects to give the market the false notion that Royal Caribbean’s

bookings, pricing, and yields were strong and that the Company would attain record EPS. These

false and misleading statements and omissions, among others, had the intended effect of preventing

the market from learning the full truth and keeping the Company’s stock price artificially inflated

throughout the Class Period. Indeed, Defendants’ false and misleading statements had the intended

89


effect and causes, or were a substantial contributing cause of Royal Caribbean’s stock trading at

artificially inflated levels, reaching as high as $49.99 during the Class Period.

189. The true picture of Royal Caribbean’s business, operations, and finances was finally

disclosed to the market beginning on July 27, 2011. On July 27, 2011, after the market closed, in a

“kitchen sink” press release, the market learned, among other things, that the Company was, in fact,

experiencing pricing softness for Eastern Mediterranean sailings, would not attain record EPS and

was lowering full year 2011 EPS guidance by another $.10 to $3.05 to $3.15, for this reason. On

August 1, 2011, when the Company issued its Form 10-Q for the period ending June 30, 2011, the

market learned further details regarding the impact that geopolitical events had on lagging demand

for the Company’s Mediterranean cruises, resulting deployment changes, and pricing reductions,

which negatively impacted the Company’s guidance. These disclosures revealed to the market that

Royal Caribbean’s bookings, pricing, yields, and demand for its European and Mediterranean

itineraries were not as strong as it had touted, and its 2011 earnings guidance was inflated and not

reasonable when made.

190. When Royal Caribbean provided the market with these revelations, it was an

indication to the market that Defendants’ prior Class Period statements were false and misleading.

As a result of the information revealed to the market on July 27, 2011, the market cast doubt on the

veracity of Defendants’ prior statements, causing Royal Caribbean’s stock to plummet $4.50 a share,

or approximately 13%, from a close of $35.76 on July 27, 2011 to close at $31.26 on July 28, 2011,

on abnormally high trading volume. Over the next several days, as Defendants’ announcements and

analyst commentary made their way into the market and the Company filed its second quarter Form

10-Q on August 1, 2011, Royal Caribbean’s stock price continued to fall, ultimately dropping

approximately 19%, as it fell from $35.76 per share on July 27, 2011 to close at $28.83 on August 2,

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2011. The market’s negative reaction to Royal Caribbean’s July 27, 2011 and August 1, 2011

revelations is demonstrated in the stock chart below:

12000000

10000000

8000000

6000000

4000000

2000000

0

38 36 34 32 30 28 26 24 22 20

Volume

-•- Price

4t 4l 4t '

Date

191

The rapid decline in Royal Caribbean’s stock price following the Company’s July 27,

2011 and August 1, 2011 disclosures was a direct and foreseeable consequence of the revelation of

the falsity of Defendants’ Class Period misrepresentations and omissions to the market. Thus, the

revelation of truth at the close of the Class Period, as well as the resulting clear market reaction,

support a reasonable inference that the market understood that Royal Caribbean’s prior statements

were false and misleading. In sum, as the truth about Defendants’ prior misrepresentations and

concealments was revealed, the Company’s stock price quickly sank, the artificial inflation came out

of the stock, and Plaintiffs were damaged suffering true economic losses.

192. The decline in Royal Caribbean’s stock price by approximately 19% from July 27,

2011 through August 2, 2011 was the direct result of the nature and extent of the revelations made to

investors and the market regarding the pricing softness for the Company’s Mediterranean cruises and

its inflated 2011 earnings guidance that had been concealed or misrepresented by Defendants’

scheme and misstatements. This decline would have been even more significant had Defendants’

disclosed the full truth regarding its lagging demand for European cruises and had Defendants not

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tried to offset the news with a “kitchen sink” press release in which it reissued its dividend for the

first time in two and a half years.

193. The timing and magnitude of Royal Caribbean’s stock price decline negates any

inference that the losses suffered by Plaintiffs were caused by changed market conditions,

macroeconomic or industry factors, or Company-specific facts unrelated to Defendants’ fraudulent

conduct. This point is evidenced by the chart below which demonstrates the clear divergence of

Royal Caribbean’s stock price from its peer index 23 as the revelation of the truth became known to

the market:

Royal Caribbean International vs. Dow Jones U.S. Travel & Leisure Index

July 25, 2011 - August 2, 2011

120

100 July 25,

80

60

40

20

0 7/25/2011 7/27/2011 7/29/2011 7/31/2011 8/2/2011

RCL - - - DJ Travel & Leisure

194. The economic loss, i.e. , damages, suffered by Plaintiff was a direct and proximate

result of Defendants’ scheme and misrepresentations and omissions that artificially inflated Royal

Caribbean’s stock price and the subsequent significant decline in the value of Royal Caribbean’s

23 The Company compares itself to the Dow Jones Unites States Travel and Leisure Index in its own public filings. See Form 10-K filed on February 24, 2011, for the period ending December 31, 2010.

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stock when the truth concerning Defendants’ prior misrepresentations and fraudulent conduct

entered the market place.

IX. PRESUMPTION OF RELIANCE: FRAUD ON-THE-MARKET DOCTRINE

195. The market for Royal Caribbean’s publicly traded securities was open, well-

developed, and efficient at all times. As a result of these materially false and misleading statements

and failures to disclose, Royal Caribbean’s publicly traded securities traded at artificially inflated

prices during the Class Period. Plaintiffs and other members of the Class purchased or otherwise

acquired Royal Caribbean’s publicly traded securities relying upon the integrity of the market price

of those securities and the market information relating to Royal Caribbean, and have been damaged

thereby.

196. At all relevant times, the market for Royal Caribbean’s securities was an efficient

market for the following reasons, among others:

(a) Royal Caribbean’s stock met the requirements for listing and was listed and

actively traded on the NYSE, a highly efficient and automated market;

(b) As a regulated issuer, Royal Caribbean regularly made public filings,

including its Forms 10-K, Forms 10-Q, and related press releases with the SEC and the NYSE;

(c) Royal Caribbean regularly communicated with public investors via

established market communication mechanisms, including through regular disseminations of press

releases on the national circuits of major newswire services and through other wide-ranging public

disclosures, such as communications with the financial press, and other similar reporting services;

and

(d) Royal Caribbean was followed by several securities analysts employed by

major brokerage firms, such as Wells Fargo Securities, J.P. Morgan, UBS, William Blair &

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Company, and Citigroup, among others, who wrote research reports that were distributed to the

brokerage firms’ sales force and the public at large. Each of these reports was publicly available and

entered the public marketplace.

197. As a result of the foregoing, the market for Royal Caribbean’s securities promptly

digested current information regarding Royal Caribbean from all publicly available sources and

reflected such information in the prices of Royal Caribbean’s securities.

198. Under these circumstances, all purchasers of Royal Caribbean’s securities during the

Class Period suffered similar injury through their purchase of Royal Caribbean’s securities at

artificially inflated prices and a presumption of reliance applies.

199. At the times they purchased or otherwise acquired Royal Caribbean’s securities,

Plaintiffs and other members of the Class were without knowledge of the facts concerning the

wrongful conduct alleged herein and could not reasonably have discovered those facts. As a result,

the presumption of reliance applies. Plaintiffs will also rely, in part, upon the presumption of

reliance established by a material omission.

200. In sum, Plaintiffs will rely, in part, upon the presumption of reliance established by

the fraud-on-the-market doctrine in that:

(a) Defendants made public misrepresentations or failed to disclose facts during

the Class Period;

(b) The omissions and misrepresentations were material;

(c) The Company’s securities traded in an efficient market;

(d) The misrepresentations alleged would tend to induce a reasonable investor to

misjudge the value of the Company’s securities; and

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(e) Plaintiffs and the other members of the Class purchased the Company’s

securities between the time Defendants misrepresented or failed to disclose material facts and the

time the true facts were disclosed, without knowledge of the misrepresented or omitted facts.

201. Plaintiffs and the other members of the Class purchased the Company’s securities

between the time Defendants misrepresented or failed to disclose material facts and the time the true

facts were disclosed, without knowledge of the misrepresented or omitted facts.

X. NO SAFE HARBOR

202. The federal statutory safe harbor providing for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in this

complaint. Many of the specific statements pleaded herein were not identified as “forward-looking

statements” when made. To the extent there were any forward-looking statements, there were no

meaningful cautionary statements identifying important factors that could cause actual results to

differ materially from those in the purportedly forward-looking statements. Alternatively, to the

extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein,

Defendants are liable for those false forward-looking statements because, at the time each of those

forward-looking statements was made, the particular speaker knew that the particular forward-

looking statement was false and/or the forward-looking statement was authorized and/or approved

by an executive officer of Royal Caribbean who knew that those statements were false when made.

Moreover, to the extent that Defendants issued any disclosures designed to “warn” or “caution”

investors of certain “risks,” those disclosures were also false and misleading since they did not

disclose that Defendants were actually engaging in the very actions about which they purportedly

warned and/or had actual knowledge of material adverse facts undermining such disclosures.

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XI. PLAINTIFFS’ CLASS ACTION ALLEGATIONS

203. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class consisting of all those who purchased or otherwise

acquired the publicly traded common stock of Royal Caribbean between October 26, 2010, and July

27, 2011, inclusive, and who were damaged thereby (the “Class”). Excluded from the Class are

Defendants, the officers and directors of the Company, at all relevant times, members of their

immediate families and their legal representatives, heirs, successors or assigns, and any entity in

which Defendants have or had a controlling interest.

204. Because Royal Caribbean has millions of shares of stock outstanding and because the

Company’s shares were actively traded on the NYSE, members of the Class are so numerous that

joinder of all members is impracticable. According to Royal Caribbean’s SEC filings, as of shortly

before the close of the Class Period, Royal Caribbean had approximately 217,006,716 shares

outstanding. While the exact number of Class members can only be determined by appropriate

discovery, Plaintiffs believe that Class members number at least in the thousands, and that they are

geographically dispersed.

205. Plaintiffs’ claims are typical of the claims of the members of the Class because

Plaintiffs and all of the Class members sustained damages arising out of Defendants’ wrongful

conduct complained of herein.

206. Plaintiffs will fairly and adequately protect the interests of the Class members and

have retained counsel experienced and competent in class actions and securities litigation. Plaintiffs

have no interests that are contrary to, or in conflict with, the members of the Class they seek to

represent.

207. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the

96


damages suffered by individual members of the Class may be relatively small, the expense and

burden of individual litigation make it impossible for the members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action as a

class action.

208. Questions of law and fact common to the members of the Class predominate over any

questions that may affect only individual members in that Defendants have acted on grounds

generally applicable to the entire Class. Among the questions of law and fact common to the Class

are:

(a) whether Defendants violated the federal securities laws as alleged herein;

(b) whether Defendants’ publicly disseminated press releases and statements

during the Class Period omitted and/or misrepresented material facts;

(c) whether Defendants breached any duty to convey material facts or to correct

material facts previously disseminated;

(d) whether Defendants participated in and pursued the fraudulent scheme or

course of business complained of herein;

(e) whether Defendants acted willfully, with knowledge or severe recklessness, in

omitting and/or misrepresenting material facts;

(f) whether the market prices of Royal Caribbean’s securities during the Class

Period were artificially inflated due to the material nondisclosures and/or misrepresentations

complained of herein; and

(g) whether the members of the Class have sustained damages as a result of the

decline in value of Royal Caribbean’s stock when the truth was revealed and the artificial inflation

came out and, if so, what is the appropriate measure of damages.

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COUNT I FOR VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5

PROMULGATED THEREUNDER AGAINST ALL DEFENDANTS

209. Plaintiffs repeat and reallege the allegations set forth above as though fully set forth

herein. This claim is asserted against all Defendants.

210. During the Class Period, Royal Caribbean and the Individual Defendants, and each of

them, carried out a plan, scheme and course of conduct which was intended to and, throughout the

Class Period, did: (i) deceive the investing public, Plaintiffs, and other Class members, as alleged

herein; (ii) artificially inflate and maintain the market price of Royal Caribbean’s publicly traded

securities; and (iii) cause Plaintiffs and other members of the Class to purchase Royal Caribbean’s

publicly traded securities at artificially inflated prices. In furtherance of this unlawful scheme, plan,

and course of conduct, Royal Caribbean and the Individual Defendants, and each of them, took the

actions set forth herein.

211. These Defendants: (i) employed devices, schemes, and artifices to defraud; (ii) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

statements not misleading; and (iii) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to

maintain artificially high market prices for Royal Caribbean’s securities in violation of Section 10(b)

of the Exchange Act and Rule 10b-5. These Defendants are sued as primary participants in the

wrongful and illegal conduct charged herein. The Individual Defendants are also sued as controlling

persons of Royal Caribbean, as alleged below.

212. In addition to the duties of full disclosure imposed on Defendants as a result of their

making affirmative statements and reports or participating in the making of affirmative statements

and reports to the investing public, they each had a duty to promptly disseminate truthful information

98


that would be material to investors in compliance with the integrated disclosure provisions of the

SEC as embodied in SEC Regulation S-X (17 C.F.R. §210.01, et seq .) and S-K (17 C.F.R. §229.10,

et seq .) and other SEC regulations, including accurate and truthful information with respect to the

Company’s operations, sales, product marketing and promotion, financial condition, and operational

performance so that the market prices of the Company’s publicly traded securities would be based on

truthful, complete, and accurate information.

213. Royal Caribbean and the Individual Defendants, individually and in concert, directly

and indirectly, by the use, means, or instrumentalities of interstate commerce and/or of the mails,

engaged and participated in a continuous course of conduct to conceal adverse material information

about the business, business practices, sales performance, product marketing and promotion,

operations, and future prospects of Royal Caribbean as specified herein.

214. These Defendants each employed devices, schemes, and artifices to defraud, while in

possession of material adverse non-public information and engaged in acts, practices, and a course of

conduct as alleged herein in an effort to assure investors of Royal Caribbean’s value and

performance and continued substantial sales, financial and operational growth, which included the

making of, or the participation in the making of, untrue statements of material facts and omitting to

state material facts necessary in order to make the statements made about Royal Caribbean and its

business operations and future prospects in light of the circumstances under which they were made,

not misleading, as set forth more particularly herein, and engaged in transactions, practices, and a

course of business which operated as a fraud and deceit upon the purchasers of Royal Caribbean’s

securities during the Class Period.

215. The Individual Defendants’ primary liability and controlling person liability arise

from the following facts, among others: a) the Individual Defendants were high-level executives at

99


the Company during the Class Period; b) the Individual Defendants, by virtue of their responsibilities

and activities as senior executive officers, were privy to, and participated in the creation,

development, and reporting of, the Company’s internal sales and marketing plans, projections,

and/or reports; c) the Individual Defendants enjoyed significant personal contact and familiarity

with, was advised of, and had access to other members of the Company’s management team, internal

reports, and other data and information about the Company’s financial condition and performance at

all relevant times; and d) the Individual Defendants were aware of the Company’s dissemination of

information to the investing public which he knew or recklessly disregarded was materially false and

misleading.

216. Each of the Defendants had actual knowledge of the misrepresentations and

omissions of material facts set forth herein, or acted with severely reckless disregard for the truth, in

that each failed to ascertain and disclose such facts, even though such facts were available to each of

them. Such Defendants’ material misrepresentations and/or omissions were done knowingly or with

deliberate recklessness and for the purpose and effect of concealing Royal Caribbean’s operating

condition, sales, product marketing and promotional practices, and future business prospects from

the investing public and supporting the artificially inflated price of its securities. As demonstrated

by the Individual Defendants’ overstatements, misstatements, and omissions of the Company’s

financial condition and performance throughout the Class Period, the Individual Defendants, if they

did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in

failing to obtain such knowledge by deliberately refraining from taking those steps necessary to

discover whether those statements were false or misleading.

217. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market prices of Royal Caribbean’s

100


securities were artificially inflated during the Class Period. In ignorance of the fact that market

prices of Royal Caribbean’s publicly traded securities were artificially inflated and relying directly

or indirectly on the false and misleading statements made by Defendants, or upon the integrity of the

market in which the securities trade, and/or on the absence of material adverse information that was

known to or disregarded with deliberate recklessness by Defendants but not disclosed in public

statements by Defendants during the Class Period, Plaintiffs and the other members of the Class

acquired Royal Caribbean’s securities during the Class Period at artificially high prices and were

damaged thereby, as evidenced by, among others, the stock price declines above.

218. At the time of said misrepresentations and omissions, Plaintiffs and other members of

the Class were ignorant of their falsity and believed them to be true. Had Plaintiffs and the other

members of the Class and the marketplace known of the true performance, sales, marketing,

promotion, and other fraudulent business practices, future prospects, and intrinsic value of Royal

Caribbean, which were not disclosed by Defendant, Plaintiffs and other members of the Class would

not have purchased or otherwise acquired their Royal Caribbean publicly traded securities during the

Class Period; or, if they had acquired such securities during the Class Period, they would not have

done so at the artificially inflated prices which they paid.

219. By virtue of the foregoing, Royal Caribbean and the Individual Defendants have each

violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

220. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiffs and the

other members of the Class suffered damages in connection with their respective purchases and sales

of the Company’s securities during the Class Period, as evidenced by, among others, the stock price

declines discussed above, when the artificial inflation was released from Royal Caribbean’s stock.

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COUNT II FOR VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT AGAINST THE

INDIVIDUAL DEFENDANTS

221. Plaintiffs repeat and reallege the allegations set forth above as though fully set forth

herein. This claim is asserted against the Individual Defendants.

222. The Individual Defendants acted as controlling persons of Royal Caribbean within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions with the Company, participation in and/or awareness of the Company’s operations and/or

intimate knowledge of the Company’s fraudulent marketing practices and actual performance, the

Individual Defendants had the power to influence and control and did influence and control, directly

or indirectly, the decision making of the Company, including the content and dissemination of the

various statements which Plaintiffs contend are false and misleading. The Individual Defendants

were provided with, or had unlimited access to, copies of the Company’s reports, press releases,

public filings, and other statements alleged by Plaintiffs to be misleading prior to and/or shortly after

these statements were issued and had the ability to prevent the issuance of the statements or cause

the statements to be corrected.

223. In addition, the Individual Defendants had direct involvement in the day-to-day

operations of the Company and, therefore, are presumed to have had the power to control or

influence the particular transactions giving rise to the securities violations as alleged herein and

exercised the same.

224. As set forth above, Royal Caribbean and the Individual Defendants each violated

Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of

their controlling positions, the Individual Defendants are liable pursuant to Section 20(a) of the

Exchange Act. As a direct and proximate result of the Individual Defendants’ wrongful conduct,

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Plaintiff and other members of the Class suffered damages in connection with their purchases of the

Company’s securities during the Class Period, as evidenced by, among others, the stock price

declines discussed above, when the artificial inflation was released from Royal Caribbean stock.

XII. PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on their own behalf and on behalf of the Class, pray for relief and

judgment, as follows:

(a) Declaring that this action is a proper class action and certifying Plaintiffs as

class representatives pursuant to Rule 23 of the Federal Rules of Civil Procedure and Plaintiffs’

counsel as Class Counsel for the proposed Class;

(b) Awarding compensatory damages in favor of Plaintiffs and the other Class

members against all Defendants, jointly and severally, for all damages sustained as a result of

Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;

(c) Awarding Plaintiffs and the Class their reasonable costs and expenses incurred

in this action, including attorneys’ fees and expert fees; and

(d) Such other and further relief as the Court deems appropriate.

XIII. JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

DATED: February 17, 2012 ROBBINS GELLER RUDMAN & DOWD LLP

/s/ Stephen R. Astley STEPHEN R. ASTLEY

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Jack Reise (Florida Bar No. 058149) Stephen R. Astley (Florida Bar No. 139254) Elizabeth A. Shonson (Florida Bar No. 22282) 120 East Palmetto Park Road, Suite 500 Boca Raton, FL 33432 Telephone: 561/750-3000 561/750-3364 (fax) [email protected] [email protected] [email protected]

MOTLEY RICE LLC James M. Hughes (pro hac vice) William S. Norton (pro hac vice) David P. Abel (pro hac vice) 28 Bridgeside Boulevard Mount Pleasant, SC 29464 Telephone: 843/216-9000 843/216-9450 (fax)

Co-Lead Counsel for Plaintiffs

O’DONOGHUE & O’DONOGHUE LLP LOUIS P. MALONE JAMES R. O’CONNELL 4748 Wisconsin Avenue, N.W. Washington, DC 20016 Telephone: 202/362-0041 202/362-2640 (fax)

Additional Counsel for Plaintiff

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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on February 17, 2012, I electronically filed the foregoing with the

Clerk of the Court using the CM/ECF system, which will send a Notice of Electronic Filing to all

counsel of record.

/s/ Stephen R. Astlev

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