Royal Caribbean Cruise Lines 2008 Annual Report Download - page 66

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-11 Royal Caribbean Cruises Ltd.
We discounted the projected cash flows using rates specific to each
reporting unit based on their respective weighted average cost of capital.
Based on the probability-weighted discounted cash flows of each report-
ing unit we determined the fair values of Royal Caribbean International
and Pullmantur exceeded their carrying values. Therefore, we did not
proceed to step two of the impairment analysis and we do not consider
goodwill to be impaired.
NOTE 5.
INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
2008 2007
Indefinite-life intangible asset –
Pullmantur tradename $246,014 $222,525
Foreign currency translation adjustment (10,404) 23,489
Total $235,610 $246,014
We performed the annual impairment review of our trademarks and
trade names during the fourth quarter of 2008 using a discounted cash
flow model and the relief-from-royalty method. The royalty rate used is
based on comparable royalty agreements in the tourism and hospitality
industry. We used the same discount rate used in valuing the Pullmantur
reporting unit. Based on the discounted cash flow model we deter-
mined the fair value of our trademarks and trade names exceeded
their carrying value.
Finite-life intangible assets and related accumulated amortization are
immaterial to our 2008, 2007, and 2006 consolidated financial statements.
NOTE 6.
PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
2008 2007
Land $ 16,288 $ 16,288
Ships 16,214,832 14,284,639
Ships under construction 749,822 652,131
Other 862,129 705,304
17,843,071 15,658,362
Less – accumulated depreciation
and amortization (3,964,073) (3,404,578)
$13,878,998 $12,253,784
Ships under construction include progress payments for the construc-
tion of new ships as well as planning, design, interest, commitment
fees and other associated costs. We capitalized interest costs of
$44.4 million, $39.9 million and $27.8 million for the years 2008,
2007 and 2006, respectively.
NOTE 7.
OTHER ASSETS
Variable Interest Entities
Financial Accounting Standard Board Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities (“FIN 46”), addresses con-
solidation by business enterprises of Variable Interest Entities (“VIEs”),
which are entities in which the equity investors have not provided enough
equity to finance its 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 proportionate to their economic interests and the entity’s activities
involve or are conducted on behalf of an investor with a disproportion-
ately small voting interest.
We have determined that our 40% minority interest in a ship repair
and maintenance facility which we invested in 2001 and again in 2008,
is a VIE. The facility serves cruise and cargo ships, oil and gas tankers,
and offshore units. We utilize this facility, amongst other ship repair
facilities, for our regularly scheduled drydocks and certain emergency
repairs as may be required. As of December 31, 2008, our investment
in this entity including equity and loans, which is also our maximum
exposure to loss as we are not contractually required to provide any
financial or other support to the facility, was approximately $72.2 mil-
lion and was included within other assets in the consolidated balance
sheet. Of this amount, $26.1 million was invested in 2008 as part of
an expansion of the facility. We have determined we are not the primary
beneficiary as we would not absorb a majority of the facility’s expected
losses nor receive a majority of the facility’s residual returns. Accord-
ingly, we do not consolidate this entity and account for this investment
under the equity method of accounting.
In conjunction with our acquisition of Pullmantur, we obtained a 49%
minority interest in Pullmantur Air, S.A. (“Pullmantur Air”), a small air
business that operates three aircraft in support of Pullmantur’s opera-
tions. We have determined Pullmantur Air is a VIE for which we are the
primary beneficiary as we are obligated to absorb the losses. In accor-
dance with FIN46, we have consolidated the assets and liabilities of
Pullmantur Air at their fair value. The assets and liabilities of Pullmantur
Air are immaterial to our December 31, 2008 and 2007 consolidated
financial statements.
Other
During 2007, we received proceeds from the repayment of $100.0 mil-
lion of notes from TUI Travel, which we purchased in March 2006.