Royal Caribbean Cruise Lines 2011 Annual Report Download - page 82

2011 ANNUAL REPORT 78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following
(in thousands):
 
Ships    
Ship improvements  
Ships under construction  
Land, buildings and
improvements, including
leasehold improvements
and port facilities  
Computer hardware and
software, transportation
equipment and other  
Total property and equipment  
Less—accumulated depreciation

and amortization () ()
   
Ships under construction include progress payments
for the construction of new ships as well as planning,
design, interest, commitment fees and other associated
costs. We capitalized interest costs of $14.0 million,
$28.1 million and $41.5 million for the years 2011, 2010
and 2009, respectively.
In November 2010, we sold Bleu de France to an unre-
lated party for $55.0 million. The sale was recorded
in the first quarter of 2011, as we consolidate the
operating results of CDF Croisières de France on a
two-month lag. (See Note 1. General.) As part of the
sale agreement, we chartered the Bleu de France from
the buyer for a period of one year from the sale date
to fulfill existing passenger commitments. The sale
resulted in an immaterial gain that was recognized
over the charter period.
In February 2011, we sold Celebrity Mercury to TUI
Cruises for €234.3 million. We executed certain for-
ward exchange contracts to lock in the sales price at
approximately $290.0 million. The sale resulted in a
gain of $24.2 million which, due to the related party
nature of the transaction, is being recognized primar-
ily over the remaining life of the ship, estimated to
be 17 years.
Atlantic Star is currently not in operation. During 2009,
we classified the ship as held for sale within other
assets in our consolidated balance sheets and recog-
nized a charge of $7.1 million to reduce the carrying
value of the ship to its fair value less cost to sell. This
amount was recorded within other operating expenses
in our consolidated statements of operations. Manage-
ment continues to actively pursue the sale of the ship.
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 Bahama Shipyard Ltd. (“Grand
Bahama”), a ship repair and maintenance facility in
which we initially invested in 2001, is a VIE. The facility
serves cruise and cargo ships, oil and gas tankers, and
offshore units. We utilize this facility, among other
ship repair facilities, for our regularly scheduled dry-
docks and certain emergency repairs as may be
required. We have determined we are not the primary
beneficiary 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 we account for this
investment under the equity method of accounting.
As of December 31, 2011 and December 31, 2010, the
net book value of our investment in Grand Bahama,
including equity and loans, was approximately $61.4
million and $64.1 million, respectively, which is also
our maximum exposure to loss as we are not contrac-
tually required to provide any financial or other sup-
port to the facility. The majority of our loans to Grand
Bahama are in non-accrual status. During 2011, we
received approximately $10.8 million in principal and
interest payments from Grand Bahama and recorded
income associated with our investment in Grand
Bahama. 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, 2011.
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