Royal Caribbean Cruise Lines 2014 Annual Report Download - page 83

82 Royal Caribbean Cruises Ltd.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
with authoritative guidance for nonconsolidated VIEs,
we have accounted for our 19% investment in these
companies under the equity method of accounting.
The impact of these entities is not material to our
consolidated financial statements.
We have determined that TUI Cruises GmbH, our
50%-owned joint venture which operates the brand
TUI Cruises, is a VIE. As of December 31, 2014 and
December 31, 2013, our investment in TUI Cruises,
including equity and loans, was approximately $370.1
million and $354.3 million, respectively. The majority
of this amount was included within Other assets in our
consolidated balance sheets. In addition, we and TUI
AG, our joint venture partner, have each guaranteed
the repayment of 50% of a €180.0 million bank loan
provided to TUI Cruises due in 2016. Our investment
amount and the potential obligations under this guar-
antee are substantially our maximum exposure to loss.
We have determined that we are not the primary ben-
eficiary 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 con-
sent of both parties which we believe creates shared
power over TUI Cruises. Accordingly, we do not con-
solidate this entity and account for this investment
under the equity method of accounting. As of Decem-
ber 31, 2014, TUI Cruises’ bank loan that is guaranteed
by the shareholders had a remaining balance of €117.0
million, or approximately $141.6 million based on the
exchange rate at December 31, 2014. This bank loan
amortizes quarterly and is secured by first mortgages
on both Mein Schiff 1 and Mein Schiff 2. Based on
current facts and circumstances, we do not believe
potential obligations under our guarantee of this bank
loan are probable.
In connection with our sale of Celebrity Mercury to
TUI Cruises in 2011, we provided a debt facility to
TUI Cruises in the amount of up to €90.0 million and
maturing through June 2018. During 2014, we made
several amendments to the facility, including increasing
the maximum amount of the facility to €125.0 million
and providing TUI Cruises with the ability to draw upon
the available capacity through December 31, 2015 to
fund installment payments for its newbuild ships. Any
amounts drawn under the facility to fund newbuild
installments mature in March 2016. Interest under
the loan accrues at the rate of 5.0% per annum. This
facility is 50% guaranteed by TUI AG and is secured
by second and third mortgages on Mein Schiff 1 and
Mein Schiff 2. The outstanding principal amount of
the facility as of December 31, 2014 was €55.7 million,
or approximately $67.4 million based on the exchange
rate at December 31, 2014.
TUI Cruises currently has three newbuild ships on order
with Meyer Turku shipyard: Mein Schiff 4, scheduled
for delivery in the second quarter of 2015, Mein Schiff
5, scheduled for delivery in the third quarter of 2016
and Mein Schiff 6, scheduled for delivery in the sec-
ond quarter of 2017. TUI Cruises has in place commit-
ments for the financing of up to 80% of the contract
price of each ship on order. The remaining portion of
the contract price of the ships will be funded through
TUI Cruises’ cash flows from operations and/or share-
holder loans (via the debt facility described above
or otherwise) and/or equity contributions from us
and TUI AG. The various ship construction and credit
agreements include certain restrictions on each of our
and TUI AG’s ability to reduce our current ownership
interest in TUI Cruises below 37.5% through 2019.
During the fourth quarter of 2014, we acquired a 35%
noncontrolling interest in Skysea Holding. We have
determined that Skysea Holding is a VIE for which we
are not the primary beneficiary, as we do not have
the power to direct the activities that most signifi-
cantly impact the entity’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, 2014, our invest-
ment balance in Skysea Holding was $26.3 million. In
December 31, 2014, we and Ctrip.com International
Ltd, who also owns 35% of Skysea Holding, each pro-
vided a debt facility to Exquisite Marine Ltd., one of
Skysea Holding’s wholly-owned subsidiaries, in the
amount of $80.0 million. Interest under these facili-
ties, which mature in January 2030, initially accrues
interest at a rate of 3.0% per annum with an increase
of at least 0.5% every two years. The facilities, which
are pari passu to each other, are each 100% guaran-
teed by Skysea Holding and secured by a first priority
mortgage on the ship, Celebrity Century, which we
sold to Exquisite Marine Ltd. in September 2014. See
Note 5. Property and Equipment for further discussion
on the sales transaction. We have determined that
Exquisite Marine Ltd. is a VIE and that we are not the
primary beneficiary, as we do not have the power to
direct the activities that most significantly impact the
entity’s economic performance. Accordingly, we do
not consolidate this entity. Our investment of $26.3
million and loan amount of $80.0 million are our
maximum exposure to loss with respect to SkySea
Holding and its subsidiaries.
Our share of income from investments accounted
for under the equity method of accounting, including
the entities discussed above, was $51.6 million, $32.0
million and $23.8 million for the years ended Decem-
ber 31, 2014, 2013 and 2012, respectively, and was
recorded within Other income (expense).