Royal Caribbean Cruise Lines 2011 Annual Report Download - page 83

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ROYAL CARIBBEAN CRUISES LTD. 79
beneficiary as we have the power to direct the activi-
ties that most significantly impact its economic per-
formance and we are obligated to absorb its losses.
In accordance with authoritative guidance, we have
consolidated the assets and liabilities of Pullmantur Air.
We do not separately disclose the assets and liabili-
ties of Pullmantur Air as they are immaterial to our
December 31, 2011 and December 31, 2010 consolidated
financial statements.
We have determined that our 50% interest in the TUI
Cruises GmbH joint venture which operates the brand
TUI Cruises, is a VIE. As of December 31, 2011 and
December 31, 2010, our investment in TUI Cruises,
including equity and loans, is substantially our maxi-
mum exposure to loss, which was approximately $282.0
million and $190.8 million, respectively, and was
included within other assets in our consolidated bal-
ance 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.
During 2011, we sold Celebrity Mercury to TUI Cruises
for €234.3 million to serve as its second ship. The ship
was renamed Mein Schiff II and began sailing in May
2011. Concurrently with entering into the agreement
to sell Celebrity Mercury, we executed certain forward
exchange contracts to lock in the sales price at approx-
imately $290.0 million. We deferred the gain on the
sale of $24.2 million which will be recognized primar-
ily over the remaining life of the ship, estimated to be
17 years. In connection with the sale, we provided a
debt facility to TUI Cruises in the amount of up to
€90.0 million. The amount drawn under the facility as
of December 31, 2011 was €80.0 million, or approxi-
mately $103.8 million based on the exchange rate at
December 31, 2011. The loan bears interest at the rate
of 9.54% per annum, is payable over seven years, is
50% guaranteed by TUI AG (our joint venture partner)
and is secured by second mortgages on both Mein
Schiff I and Mein Schiff II. In addition, we and TUI AG
each guaranteed the repayment of 50% of an €180.0
million 5-year bank loan provided to TUI Cruises,
€170.3 million as of December 31, 2011, in connection
with the sale of the ship. The bank loan amortizes
quarterly and is secured by first mortgages on both
Mein Schiff I and Mein Schiff II. Based on current facts
and circumstances, we do not believe potential obli-
gations under this guarantee would be material to our
results of operations.
During 2011, TUI Cruises entered into a construction
agreement with STX Finland to build its first newbuild
ship, scheduled for delivery in the second quarter of
2014. TUI Cruises has entered into a credit agreement
for financing of up to 80% of the contract price of the
ship. The remaining portion of the contract price of
the ship will be funded through either TUI Cruises’
cash flows from operations or loans and/or equity
contributions from us and TUI AG. The construction
agreement includes certain restrictions on each of our
and TUI AG’s ability to reduce our current ownership
interest in TUI Cruises below 37.5% through the con-
struction period. In addition, the credit agreement
extends this restriction through 2019. TUI Cruises has
an option to construct a second ship of the same
class, which will expire on October 31, 2012.