Royal Caribbean Cruise Lines 2014 Annual Report Download - page 82

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 was reported in Restructuring and
related impairment charges in our consolidated state-
ments of comprehensive income (loss). The remaining
long-lived assets held for sale were not material to
our December 31, 2013 consolidated financial state-
ments and no longer exist as of December 31, 2014.
See Note 14. Fair Value Measurements and Derivative
Instruments and Note 16. Restructuring and Related
Impairment Charges for further discussion.
NOTE 6. OTHER ASSETS
A Variable Interest Entity (“VIE”) is an entity in which
the equity investors have not provided enough equity
to finance the entity’s activities or the equity investors
(1) cannot 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 Grand Bahama Shipyard
Ltd. (“Grand Bahama”), a ship repair and maintenance
facility in which we have a 40% noncontrolling inter-
est, 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 reg-
ularly scheduled drydocks and certain emergency
repairs as may be required. We have determined that
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 per-
formance. Accordingly, we do not consolidate this
entity and we account for this investment under the
equity method of accounting. As of December 31,
2014, the net book value of our investment in Grand
Bahama was approximately $53.8 million, consisting
of $7.7 million in equity and $46.1 million in loans.
As of December 31, 2013, the net book value of our
investment in Grand Bahama was approximately $56.1
million, consisting of $6.4 million in equity and $49.7
million in loans. These amounts represent our maximum
exposure to loss as we are not contractually required
to provide any financial or other support to the facility.
The majority of our loans to Grand Bahama are in non-
accrual status and the majority of this amount was
included within Other assets in our consolidated bal-
ance sheets. We received approximately $3.6 million
and $6.2 million in principal and interest payments
related to loans that are in accrual status from Grand
Bahama in 2014 and 2013, respectively, and recorded
income associated with our investment in Grand
Bahama. We monitor credit risk associated with these
loans through our participation on Grand Bahama’s
board of directors along with our review of Grand
Bahama’s financial statements and projected cash
flows. Based on this review, we believe the risk of loss
associated with these loans was not probable as of
December 31, 2014.
On March 31, 2014, as part of Pullmantur’s sale of its
non-core businesses, Pullmantur sold the majority of
its 49% interest in Pullmantur Air S.A. (“Pullmantur
Air”), a small aircraft business that operates four air-
craft in support of Pullmantur’s operations. Post-sale,
we retained a 19% interest in Pullmantur Air as well as
100% ownership of the aircraft, which are now being
dry leased to Pullmantur Air. We will continue to utilize
the services provided by Pullmantur Air. Consistent
with our Pullmantur two-month lag reporting period,
we reported the impact of the sale in the second
quarter of 2014. As of the date of the sale, we deter-
mined that Pullmantur Air was no longer a VIE and
have accounted for our 19% investment in Pullmantur
Air under the cost method of accounting.
Prior to the sale, we determined that Pullmantur Air
was a VIE for which we were the primary beneficiary
and we consolidated the assets and liabilities of
Pullmantur Air in our consolidated balance sheets
as of December 31, 2013. We did not separately
disclose the assets and liabilities of Pullmantur Air
as they were immaterial to our December 31, 2013
consolidated financial statements. See Note 16.
Restruc turing and Related Impairment Charges for
further discussion of the transaction.
Additionally, in connection with the sale of Pullmantur’s
non-core businesses, Pullmantur sold the majority
of its land-based tour operations and travel agency,
retaining a 19% noncontrolling interest in both Nautalia
Viajes, S.L. (“Nautalia”), a small travel agency network,
and Global Tour Operación, S.L. (“Global Tour”), a
small tour operations business. We will continue to
utilize the services provided by these businesses, in
addition to services from other travel agency and
tour operations businesses. Consistent with our two-
month lag Pullmantur reporting period, we reported
the impact of this sale in our consolidated financial
statements in the second quarter of 2014. As of the
date of the sale, we determined that Nautalia and
Global Tour were VIEs for which we were not the pri-
mary beneficiaries as we do not have the power to
direct the activities that most significantly impact the
economic performance of these entities. In accordance