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Other Assets Other Assets | 9 Months Ended
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Sep. 30, 2016
Schedule of Investments [Abstract] |
Other Assets Disclosure | 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 proportionate 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 TUI Cruises GmbH, our 50%-owned joint venture, which operates the brand TUI Cruises, is a VIE. As of September 30, 2016, the net book value of our investment in TUI Cruises was approximately $513.6 million, consisting of $304.3 million in equity and a loan of $209.3 million. The loan, which was made in connection with the sale of Splendour of the Seas in April 2016, accrues interest at a rate of 6.25% per annum and is payable over a 10-year term. This loan is 50% guaranteed by TUI AG, our joint venture partner, and is secured by a first priority mortgage on the ship. Refer to Note 4. Property and Equipment for further information. As of December 31, 2015, the net book value of our investment in TUI Cruises was approximately $293.8 million, consisting of equity. The majority of these amounts were included within Other assets in our consolidated balance sheets. In addition, we and TUI AG have each guaranteed the repayment of 50% of a bank loan. As of September 30, 2016, the outstanding principal amount of the loan was €121.6 million, or approximately $136.6 million based on the exchange rate at September 30, 2016. While this loan matures in May 2022, the lenders have agreed to release each shareholder's guarantee in 2018. The loan amortizes quarterly and is secured by first mortgages on the Mein Schiff 1 and Mein Schiff 2 vessels. Based on current facts and circumstances, we do not believe potential obligations under our guarantee of this bank loan are probable. Our investment amount, outstanding term loan and the potential obligations under the bank loan guarantee are substantially our maximum exposure to loss in connection with our investment in TUI Cruises. We have determined that we are not the primary beneficiary 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 consent of both parties, which we believe creates shared power over TUI Cruises. Accordingly, we do not consolidate this entity and account for this investment under the equity method of accounting. As of September 30, 2016, TUI Cruises has three newbuild ships on order scheduled to be delivered in each of 2017, 2018 and 2019. TUI Cruises has in place agreements for the secured financing of each of the ships on order for up to 80% of the contract price. The remaining portion of the contract price of the ships is expected to be funded through an existing €150.0 million bank facility and TUI Cruises’ cash flows from operations. The various ship construction and financing agreements include certain restrictions on each of our and TUI AG’s ability to reduce our current ownership interest in TUI Cruises below 37.55% through 2021. We have determined that RCHE, in which we have a 49% noncontrolling interest, is a VIE for which 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, subsequent to the sale of our 51% interest in RCHE to Springwater Capital LLC ("Springwater"), we do not consolidate this entity and we account for this investment under the equity method of accounting. As of September 30, 2016, the net book value of our investment in RCHE was approximately $25.0 million, consisting of reimbursement commitments from several RCHE subsidiaries to RCL for fuel hedge costs related to Pullmantur and CDF through the closing date and as a condition of the sale. The amount is payable through 2019 and is 51% guaranteed by Springwater. This amount was included within Trade and Other Receivables and Other assets in our consolidated balance sheets and represents our maximum exposure to loss related to our investment in RCHE. In conjunction with the sale, we provided a non-revolving working capital facility to an RCHE subsidiary in the amount of up to €15.0 million or approximately $16.9 million based on the exchange rate at September 30, 2016. Proceeds of the facility, which may be drawn through July 2018, will bear interest at the rate of 6.5% per annum and are payable through 2022. Springwater has guaranteed repayment of 51% of the oustanding amounts under the facility. As of September 30, 2016, no amounts had been drawn on this facility. See Note 1. General for further discussion on the sales transaction. We have determined that Grand Bahama Shipyard Ltd. (“Grand Bahama”), a ship repair and maintenance facility in which we have a 40% noncontrolling interest, is a VIE. This facility serves cruise and cargo ships, oil and gas tankers and offshore units. We utilize this facility, among other ship repair facilities, for our regularly scheduled drydocks and certain emergency repairs as may be required. During the quarter and nine months ended September 30, 2016, we made payments of $2.6 million and $36.0 million, respectively, to Grand Bahama for ship repair and maintenance services. 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 performance. Accordingly, we do not consolidate this entity and we account for this investment under the equity method of accounting. As of September 30, 2016, the net book value of our investment in Grand Bahama was approximately $45.7 million, consisting of $21.9 million in equity and a loan of $23.8 million. As of December 31, 2015, the net book value of our investment in Grand Bahama was approximately $51.2 million, consisting of $12.6 million in equity and a loan of $38.6 million. These amounts represent our maximum exposure to loss related to our investment in Grand Bahama. Our debt agreement with Grand Bahama was amended during the quarter ended March 31, 2016 to extend the maturity by 10 years and increase the applicable interest rate to the lower of (i) LIBOR plus 3.50% and (ii) 5.5%. Interest payable on the loan is due on a semi-annual basis. We continue to classify the loan, as modified, as non-accrual status. The loan balance is included within Other assets in our consolidated balance sheets. During the quarter ended September 30, 2016, no principal payments were made. During the nine months ended September 30, 2016 we received principal payments of approximately $14.8 million. We monitor credit risk associated with the loan 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 the outstanding loan is not probable as of September 30, 2016. We have determined that Skysea Holding International Ltd. ("Skysea Holding"), in which we have a 35% noncontrolling interest, is a VIE for which 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 and we account for this investment under the equity method of accounting. In December 2014, we and Ctrip.com International Ltd, which also owns 35% of Skysea Holding, each provided a debt facility to a wholly owned subsidiary of Skysea Holding in the amount of $80.0 million. Interest under these facilities, which mature in January 2030, initially accrues at a rate of 3.0% per annum with an increase of at least 0.5% every two years through maturity. The facilities, which are pari passu to each other, are each 100% guaranteed by Skysea Holding and are secured by first priority mortgages on the ship, Golden Era. In September 2016, we and Ctrip.com International Ltd each provided an additional debt facility to Skysea Holding in the amount of up to $3.8 million. Interest under these facilities, which mature in December 2016, accrues at a rate of 3.0% per annum. As of September 30, 2016, the net book value of our investment in Skysea Holding and its subsidiaries was approximately $95.5 million, consisting of $11.2 million in equity and loans of $84.3 million. As of December 31, 2015, the net book value of our investment in Skysea Holding and its subsidiaries was approximately $99.8 million, consisting of $17.3 million in equity and a loan of $82.4 million. The majority of these amounts were included within Other assets in our consolidated balance sheets and represent our maximum exposure to loss related to our investment in Skysea Holding. The following table sets forth information regarding our investments accounted for under the equity method of accounting, including the entities discussed above, (in thousands):
|  | Quarter Ended September 30, 2016 |  | Quarter Ended September 30, 2015 |  | Nine Months Ended September 30, 2016 |  | Nine Months Ended September 30, 2015
Share of equity income from investments (1) |  | $ | 46,539 |  |  | $ | 38,359 |  |  | $ | 94,832 |  |  | $ | 62,183 |
Dividends received |  | $ | 47,491 |  |  | $ | 1,347 |  |  | $ | 71,370 |  |  | $ | 5,327 |
(1) Our share of equity income from investments are reported within Other income in our consolidated statements of comprehensive income (loss) and Other, net within Operating Activities in our consolidated statements of cash flows. We also provide ship management services to TUI Cruises GmbH, RCHE and Skysea Holding. Additionally, we bareboat charter to Pullmantur the vessels currently operated by its brands, which were retained by us. We recorded the following as it relates to these services in our operating results within our consolidated statements of comprehensive income (loss) (in thousands):
|  | Quarter Ended September 30, 2016 |  | Quarter Ended September 30, 2015 |  | Nine Months Ended September 30, 2016 |  | Nine Months Ended September 30, 2015
Revenues |  | $9,300 |  | $3,940 |  | $17,888 |  | $15,557
Expenses |  | $2,410 |  | $2,606 |  | $8,930 |  | $12,149

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