General

Description of Business

We are a global cruise company. As of June 30, 2016, we owned Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, CDF Croisières de France and a 50% joint venture interest in TUI Cruises.

Sale of Controlling Interest in Pullmantur

In July 2016, we sold 51% of our interest in Pullmantur and CDF Croisières de France. We retained a 49% interest in these businesses as well as full ownership of the vessels currently operated by the brands, which will be bareboat chartered to Pullmantur and CDF Croisières de France. We will also provide certain ship management services to these businesses. As a result of the sale of a majority interest in these businesses, we expect to recognize an immaterial gain and we will no longer consolidate these businesses in our consolidated financial statements. In addition, we also continue to retain full ownership of the aircraft, which were not impacted by this sales transaction. Our investment in these businesses will be accounted for under the equity method of accounting.

The sale did not represent a strategic shift that will have a major effect on our operations and financial results, as we continue to provide similar itineraries to and source passengers from the markets served by the Pullmantur and Croisières de France businesses. Therefore, the sale of these businesses did not meet the criteria for discontinued operations reporting. Due to the change in the nature of the cash flows to be generated by the Pullmantur vessels, we also reviewed the vessels for impairment. We determined that the undiscounted future cash flows of the vessels exceeded their carrying value; therefore, no impairment was required. Pullmantur and CDF Croisières de France met the accounting criteria to be classified as held for sale during the second quarter of 2016 and accordingly all assets and liabilities of these businesses have been reclassified to Assets held for sale and Liabilities held for sale as of June 30, 2016 on our consolidated balance sheets.

The major classes of assets and liabilities of Pullmantur and CDF Croisières de France included in our consolidated balance sheet as of June 30, 2016 were as follows (in thousands):



Assets
Cash and cash equivalents	$	14,521
Trade and other receivables, net	43,466
Inventories	6,943
Prepaid expenses and other assets	14,912
Property and equipment, net	4,436
Other assets	1,657
Total assets held for sale	$	85,935
Liabilities
Accounts payable	$	27,691
Accrued expenses and other liabilities	42,873
Customer deposits	26,323
Other liabilities	3,080
Total liabilities held for sale	$	99,967

Basis for Preparation of Consolidated Financial Statements

The unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Estimates are required for the preparation of financial statements in accordance with these principles. Actual results could differ from these estimates. Refer to Note 2. Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of our significant accounting policies.

All significant intercompany accounts and transactions are eliminated in consolidation. We consolidate entities over which we have control, usually evidenced by a direct ownership interest of greater than 50%, and variable interest entities where we are determined to be the primary beneficiary. Refer to Note 5. Other Assets for further information regarding our variable interest entities. For affiliates we do not control but over which we have significant influence on financial and operating policies, usually evidenced by a direct ownership interest from 20% to 50%, the investment is accounted for using the equity method.

Prior to January 1, 2016, we consolidated the operating results of Pullmantur and CDF Croisières de France on a two-month reporting lag to allow for more timely preparation of our consolidated financial statements. Effective January 1, 2016, we eliminated the two-month reporting lag to reflect Pullmantur's and CDF Croisières de France's financial position, results of operations and cash flows concurrently and consistently with the fiscal calendar of the Company ("elimination of the Pullmantur reporting lag"). The elimination of the Pullmantur reporting lag represents a change in accounting principle which we believe to be preferable because it provides more current information to the users of our financial statements. A change in accounting principle requires retrospective application, if material. The impact of the elimination of the reporting lag was immaterial to prior periods and is expected to be immaterial for our fiscal year ended December 31, 2016. As a result, we have accounted for this change in accounting principle in our consolidated results for the first six months of 2016. Accordingly, the results of Pullmantur and CDF Croisières de France for November and December 2015, in addition to the six months ended June 30, 2016, are included in our statement of comprehensive income (loss) for the six months ended June 30, 2016. The effect of this change was a decrease to net income of $21.7 million and this amount is reported within Other income in our consolidated statements of comprehensive income (loss) for the six months ended June 30, 2016.