Royal Caribbean Cruise Lines 2013 Annual Report Download - page 84
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As described in Note 3. Goodwill, the persistent eco-
nomic instability in Pullmantur’s markets has created
significant uncertainties in forecasting operating
results and future cash flows used in our impairment
analysis. We continue to monitor economic events in
these markets for their potential impact on Pullmantur’s
business and valuation. Further, the estimation of fair
value utilizing discounted expected future cash flows
includes numerous uncertainties which require our
significant judgment when making assumptions of
expected revenues, operating costs, marketing, sell-
ing and administrative expenses, interest rates, ship
additions and retirements as well as assumptions
regarding the cruise vacation industry’s competitive
environment and general economic and business
conditions, among other factors. If there are modest
changes to the projected future cash flows used in
the impairment analysis, especially in Net Yields or
if certain transfers of vessels from our other cruise
brands to the Pullmantur fleet do not take place, an
impairment charge with respect to the Pullmantur
reporting unit’s trademarks and trade names may
be required.
Finite-life intangible assets and related accumulated
amortization are immaterial to our 2013, 2012, and
2011 consolidated financial statements.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following
(in thousands):
Sh ips
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 deprecia-
tion and amortization () ()
Ships under construction include progress payments
for the construction of new ships as well as planning,
design, interest, commitment fees and other associ-
ated costs. We capitalized interest costs of $17.9 mil-
lion, $13.3 million and $14.0 million for the years 2013,
2012 and 2011, respectively.
In 2013, our agreement with STX France S.A. to
build the third Oasis-class ship for Royal Caribbean
International became effective. Refer to Note 15.
Commitments and Contingencies for further infor-
mation. Pullmantur’s Atlantic Star, which has been
out of operation since 2009, was transferred in the
first quarter of 2013 to an affiliate of STX France S.A.
as part of the consideration for the third Oasis-class
ship. The Atlantic Star was transferred at carrying
value, which approximated its fair value on the date
of its transfer. The transfer did not result in a gain or
a loss.
We review our long-lived assets for impairment when-
ever events or changes in circumstances indicate
potential impairment. Due to an anticipated change
in the nature of the cash flows to be generated by
the Pullmantur aircraft, we reviewed the aircraft for
impairment. We identified that the undiscounted
future cash flows of the aircraft were less than their
carrying value and recorded a restructuring related
impairment charge of $13.5 million which is reported
in Restructuring and related impairment charges in our
consolidated statements of comprehensive income
(loss) as of December 31, 2013.
Additionally, Pullmantur’s non-core businesses met
the accounting criteria to be classified as held for sale
during the fourth quarter of 2013 which led to restruc-
turing related impairment charges of $18.2 million to
adjust the carrying value of property and equipment
held for sale to its fair value, less cost to sell. The
impairment charge is reported in Restructuring and
related impairment charges in our consolidated state-
ments of comprehensive income (loss). The remaining
long-lived assets held for sale are not material. See
Note 14. Fair Value Measurements and Derivative
Instruments and Note 16. Restructuring and Related
Impairment Charges for further discussion.
During 2012, the fair value of Pullmantur’s aircraft
were determined to be less than their carrying value
and an impairment charge of $48.9 million was rec-
ognized in earnings during the fourth quarter of 2012
and was reported within Impairment of Pullmantur
related assets within our consolidated statements of
comprehensive income (loss).
During 2012, Pullmantur delivered Ocean Dream to
an unrelated third party as part of a six year bareboat
charter agreement. The charter agreement provides
a renewal option exercisable by the unrelated third
party for an additional four years. The charter agree-
ment constitutes an operating lease and charter reve-
nue is being recognized on a straight-line basis over
the six year charter term. The charter revenue recog-
nized during 2013 and 2012 was not material to our
results of operations.