Property and Equipment

12 Months Ended

Dec. 31, 2012

Property and Equipment

Property and Equipment

Note 5. Property and Equipment

        Property and equipment consists of the following (in thousands):

	2012			2011
Ships	$	20,855,606		$	19,958,127
Ship improvements		1,341,137			976,363
Ships under construction		169,274			227,123
Land, buildings and improvements, including leasehold improvements and port facilities		377,821			360,399
Computer hardware and software, transportation equipment and other		698,865			748,102
Total property and equipment		23,442,703			22,270,114
Less—accumulated depreciation and amortization		(5,991,669	)		(5,335,297	)
	$	17,451,034		$	16,934,817

        Ships under construction include progress payments for the construction of new ships as well as planning, design, interest, commitment fees and other associated costs. We capitalized interest costs of $13.3 million, $14.0 million and $28.1 million for the years 2012, 2011 and 2010, respectively.

        During 2012, Pullmantur delivered Ocean Dream to an unrelated third party as part of a six year bareboat charter agreement. The charter agreement provides a renewal option exercisable by the unrelated third party for an additional four years. The charter agreement constitutes an operating lease and charter revenue is being recognized on a straight-line basis over the six year charter term. The charter revenue recognized during 2012 was not material to our results of operations.

        We review our long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated undiscounted future cash flows. As part of step two of our goodwill impairment analysis, (see Note 3. Goodwill for further information), we identified that the estimated fair values of certain long-lived assets, consisting of three aircraft owned and operated by Pullmantur Air, were less than their carrying values. As a result, we proceeded to our long-lived asset impairment test. Pullmantur's strategy to further diversify its passenger sourcing and reduce its reliance on the Spanish market has led us to reduce the number of years during which we expect to use these aircraft when performing the undiscounted cash flow test. The undiscounted cash flows for Pullmantur's aircraft were determined to be less than their carrying value and an impairment charge of $48.9 million was required. This impairment charge was recognized in earnings during the fourth quarter of 2012 and is reported within Impairment of Pullmantur related assets within our consolidated statements of comprehensive income (loss). See Note 13. Fair Value Measurements and Derivative Instruments for further discussion.

        In December 2012, we reached a conditional agreement with STX France to build the third Oasis-class ship for Royal Caribbean International. The agreement is subject to certain closing conditions and is expected to become effective in the first quarter of 2013. The ship will have a capacity of approximately 5,400 berths and is expected to enter service in the second quarter of 2016. If the agreement becomes effective, Pullmantur's Atlantic Star, which has been out of operation since 2009, will be transferred to an affiliate of STX France as part of the consideration. The transfer is not expected to result in a gain or a loss. In addition, we have an option to construct a fourth Oasis-class ship which will expire five days prior to the first anniversary of the effective date of the contract.