Royal Caribbean Cruise Lines 2010 Annual Report Download - page 75

2010 ANNUAL REPORT 72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. OTHER ASSETS
Variable Interest Entities
Variable Interest Entities (“VIEs”), are entities in which
the equity investors have not provided enough equity
to finance its activities or the equity investors (1) can-
not directly or indirectly make decisions about the
entity’s activities through their voting rights or similar
rights; (2) do not have the obligation to absorb the
expected losses of the entity; (3) do not have the
right to receive the expected residual returns of the
entity; or (4) have voting rights that are not propor-
tionate to their economic interests and the entity’s
activities involve or are conducted on behalf of an
investor with a disproportionately small voting interest.
We have determined that our 40% noncontrolling
interest in Grand Bahamas Shipyard Ltd., a ship repair
and maintenance facility which we initially invested in
2001, is a VIE. The facility serves cruise and cargo
ships, oil and gas tankers, and offshore units. We uti-
lize this facility, among other ship repair facilities, for
our regularly scheduled drydocks and certain emer-
gency repairs as may be required. As of December 31,
2010, we had loans and interest due from this facility
of approximately $64.1 million which is also our maxi-
mum exposure to loss as we are not contractually
required to provide any financial or other support to
the facility. The majority of these loans are in non-
accrual status. We monitor credit risk associated with
these loans through our participation on the facility’s
board of directors along with our review of the facility’s
financial statements and projected cash flows. Based
on this review, we believe the risk of loss associated
with these loans is remote as of December 31, 2010.
We have determined we are not the primary benefi-
ciary of this facility as we do not have the power to
direct the activities that most significantly impact the
facility’s economic performance. Accordingly, we do
not consolidate this entity and account for this invest-
ment under the equity method of accounting.
In conjunction with our acquisition of Pullmantur in
2006, we obtained a 49% noncontrolling interest in
Pullmantur Air, S.A. (“Pullmantur Air”), a small air
business that operates four aircrafts in support of
Pullmantur’s operations. We have determined Pullmantur
Air is a VIE for which we are the primary beneficiary
as we have the power to direct the activities that
most significantly impact its economic performance
and are obligated to absorb its losses. In accordance
with authoritative guidance, we have consolidated the
assets and liabilities of Pullmantur Air. We do not dis-
close the assets and liabilities of Pullmantur Air as
they are immaterial to our December 31, 2010 consoli-
dated financial statements.
We have determined that our 50% interest in the TUI
Cruises GmbH joint venture with TUI AG, which oper-
ates the brand TUI Cruises, is a VIE. As of December 31,
2010, our investment in this entity which is substan-
tially our maximum exposure to loss, was approxi-
mately $190.8 million and was included within other
assets in our consolidated balance sheets. We have
determined that we are not the primary beneficiary of
TUI Cruises. We believe that the power to direct the
activities that most significantly impact TUI Cruises’
economic performance are shared between ourselves
and TUI AG. All the significant operating and financial
decisions of TUI Cruises require the consent of both
parties which we believe creates shared power over
TUI Cruises. Accordingly, we do not consolidate this
entity and account for this investment under the
equity method of accounting.