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v2.4.0.6
Document and Entity Information Document
3 Months Ended
Mar. 31, 2013
Document and Entity Information [Abstract]  
Entity Registrant Name Seven Seas Cruises S. DE R.L.
Entity Central Index Key 0001534814
Current Fiscal Year End Date --12-31
Entity Filer Category Non-accelerated Filer
Document Type 10-Q
Document Period End Date Mar. 31, 2013
Document Fiscal Year Focus 2013
Document Fiscal Period Focus Q1
Amendment Flag false
Entity Common Stock, Shares Outstanding 0
v2.4.0.6
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Mar. 31, 2012
Dec. 31, 2011
Current assets        
Cash and cash equivalents $ 119,943 $ 99,857 $ 79,779 $ 68,620
Trade and other receivables, net 10,439 7,279    
Related party receivables 2,441 1,798    
Inventories 6,548 6,572    
Prepaid expenses 19,014 17,828    
Other current assets 3,688 2,692    
Total current assets 162,073 136,026    
Property and equipment, net 632,328 637,324    
Goodwill 404,858 404,858    
Intangible assets, net 83,478 83,556    
Other long-term assets 33,067 32,950    
Total assets 1,315,804 1,294,714    
Current liabilities        
Trade and other payables 2,878 4,483    
Related party payables 0 131    
Accrued expenses 48,378 43,733    
Passenger deposits 188,965 169,463    
Derivative liabilities 55 278    
Current portion of long-term debt 745 0    
Total current liabilities 241,021 218,088    
Long-term debt 518,537 518,358    
Other long-term liabilities 12,410 9,635    
Total liabilities 771,968 746,081    
Commitments and contingencies          
Members' equity        
Contributed capital 564,624 564,372    
Accumulated deficit (20,788) (15,739)    
Total members' equity 543,836 548,633    
Total liabilities and members' equity $ 1,315,804 $ 1,294,714    
v2.4.0.6
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash flows from operating activities    
Net (loss) income $ (5,049) $ 358
Adjustments:    
Depreciation and amortization 9,253 9,675
Amortization of deferred financing costs 504 785
Accretion of debt discount 201 126
Stock-based compensation 251 148
Unrealized gain on derivative contracts (425) (1,262)
Write-off deferred financing costs and debt discount 2,500 0
Prepayment penalty, excluded from loss on early extinguishment of debt (2,093) 0
Other, net (11) (13)
Changes in operating assets and liabilities:    
Trade and other accounts receivable (3,787) (3,283)
Prepaid expenses and other current assets (1,142) (513)
Inventories 24 (1,059)
Accounts payable and accrued expenses 5,257 477
Passenger deposits 21,219 12,480
Net cash provided by operating activities 26,702 17,919
Cash flows from investing activities    
Purchases of property and equipment (3,337) (4,913)
Change in restricted cash (25) 205
Acquisition of intangible assets (90) 0
Net cash used in investing activities (3,452) (4,708)
Cash flows from financing activities    
Debt issuance costs (955) (130)
Deferred payment to acquire intangible asset (2,000) (2,000)
Net cash used in financing activities (2,955) (2,130)
Effect of exchange rate changes on cash and cash equivalents (209) 78
Net increase in cash and cash equivalents 20,086 11,159
Cash and cash equivalents    
Beginning of period 99,857 68,620
End of period $ 119,943 $ 79,779
v2.4.0.6
Consolidated Statements of Income and Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Revenue    
Passenger ticket $ 113,438 $ 110,128
Onboard and other 10,879 11,288
Total revenue 124,317 121,416
Cruise operating expense    
Commissions, transportation and other 39,915 40,822
Onboard and other 2,680 2,256
Payroll, related and food 19,336 18,776
Fuel 11,477 12,113
Other ship operating 9,639 9,331
Other 1,249 1,280
Total cruise operating expense 84,296 84,578
Other operating expense    
Selling and administrative 22,280 21,147
Depreciation and amortization 9,253 9,675
Total operating expense 115,829 115,400
Operating income 8,488 6,016
Non-operating income (expense)    
Interest income 75 103
Interest expense (10,048) (8,085)
Other income (expense) (3,485) 2,513
Total non-operating expense (13,458) (5,469)
Income (loss) before income taxes (4,970) 547
Income tax expense (79) (189)
Net (loss) income (5,049) 358
Other comprehensive loss, net of tax: 0 0
Total comprehensive (loss) income $ (5,049) $ 358
v2.4.0.6
General
3 Months Ended
Mar. 31, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
General
General
Basis of Presentation
Seven Seas Cruises S. DE R.L. (“SSC”, “we” or “our”) is a Panamanian sociedad de responsibilidad limitada organized on November 7, 2007, and is owned by Classic Cruises, LLC (“CCL I”) and Classic Cruises II, LLC (“CCL II”). CCL I and CCL II are Delaware companies and each company owns 50% of SSC. Prestige Cruise Holdings, Inc. (“PCH”) owns both CCL I and CCL II. PCH is a 100%-owned subsidiary of our ultimate parent company, Prestige Cruises International, Inc. (“PCI”). PCI is controlled by funds affiliated with Apollo Global Management, LLC ("Apollo"). We commenced operations on February 1, 2008 upon the consummation of the Regent Seven Seas acquisition when we acquired substantially all the assets of Regent Seven Seas Cruises.
The accompanying interim consolidated financial statements include the accounts of SSC and its 100%-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States. The financial information presented as of any date other than December 31 has been prepared from the books and records of the Company that are unaudited. Financial information as of December 31 has been derived from SSC’s audited financial statements, but does not include all disclosures required by generally accepted accounting principles.
The accompanying consolidated balance sheet at March 31, 2013 and the consolidated statements of income (loss) and comprehensive income (loss) for the three months ended March 31, 2013 and 2012 and consolidated statements of cash flows for the three months ended March 31, 2013 and 2012 are unaudited, and, in the opinion of management, contain all adjustments, consisting of only normal recurring adjustments, necessary for fair presentation. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2012 and notes thereto included in our annual report on Form 10-K. Our operations are seasonal, and results from our interim periods are not necessarily indicative of the results to be expected for the entire year.
Significant Accounting Policies
Property and Equipment
As of January 1, 2013 we changed our estimate for all our ships' projected residual values. The change was triggered as we obtained recent sales information for luxury cruise ships that occurred in the three month period ended March 31, 2013. This new information, in conjunction with other comparable sale data points, was used in our analysis, which includes our consideration of anticipated technological changes, long-term cruise and vacation market conditions and replacement cost of similarly built vessels. As a result, we increased each ship's projected residual value from 15% to 30%. The change in estimate has been applied prospectively. The effect of the change on both operating income and net loss for the three month period ended March 31, 2013 is approximately $1.3 million of reduced depreciation expense. The estimated impact of this change for full year 2013 is a reduction of depreciation expense of approximately $5.0 million. We continue to evaluate relevant new factors and circumstances, which may cause us to revise our estimate in the future. If such a change is necessary, depreciation expense could be materially higher or lower.









Other
During 2012, we increased our passenger ticket revenue and commissions, transportation and other expenses by $1.6 million during the three months ended March 31, 2012. This revision relates to certain included costs that were originally recorded as a reduction of passenger ticket revenue and should have been recorded as commissions, transportation and other costs. We assessed the materiality of these errors on the previously issued financial statements in accordance with ASC 250-10-S99, the Securities and Exchange Commission ("SEC") guidance, Staff Accounting Bulletin No. 99, Materiality ("SAB 99") and the amounts recorded were deemed immaterial to previously issued unaudited quarterly financial statements and had no impact on net income or cash flows.


New Accounting Pronouncements
As of January 1, 2013, we adopted Financial Accounting Standards Board ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. It requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. In 2013, this pronouncement was enhanced by ASU 2013-1. This update clarifies that ordinary receivables are not within the scope of ASU 2011-11 and it applies only to derivatives, repurchase agreements, reverse purchase agreements and other securities lending transactions. The adoption did not materially impact our consolidated financial statements.
In February 2013, the Financial Accounting Standards Board issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. It requires an entity to present the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. Entities must also cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period. This standard was effective beginning January 1, 2013. The adoption did not materially impact our consolidated financial statements.
There are no other recently issued accounting pronouncements not yet adopted or recently issued pronouncements that we expect to have a material effect on the presentation or disclosure of our future consolidated operating results, cash flows or financial condition.
v2.4.0.6
Property and Equipment, net
3 Months Ended
Mar. 31, 2013
Property, Plant and Equipment [Abstract]  
Property and Equipment, net
Property and Equipment, net
During the three months ended March 31, 2013, property and equipment, net decreased $5.0 million. Capital expenditures totaled $3.3 million and $4.9 million for the three months ended March 31, 2013 and 2012, respectively. Depreciation expense on assets in service was $8.4 million and $8.9 million for the three months ended March 31, 2013 and 2012, respectively.
v2.4.0.6
Debt
3 Months Ended
Mar. 31, 2013
Debt Disclosure [Abstract]  
Debt
    Debt



March 31,

December 31,
(in thousands)


2013

2012
$300 million term loan, 4.75% and 6.25% as of March 31, 2013 and December 31, 2012, respectively, due through 2018


$
296,250


$
296,250

$225 million senior secured notes, 9.125%, due 2019


225,000


225,000

Total debt


521,250


521,250

Less: Original issue discount
 
 
(1,963
)
 
(2,892
)
Less: Current portion of long-term debt


(750
)


Long-term portion


$
518,537


$
518,358


Interest expense on third-party debt was $9.1 million and $6.9 million for the three months ended March 31, 2013 and 2012, respectively.

Term Loan
On February 1, 2013, we amended our previously existing $340.0 million credit agreement, consisting of a $300.0 million term loan and $40.0 million revolving credit facility. Interest on our term loan is calculated based upon LIBOR, with a floor of 1.25%, plus an applicable margin. In conjunction with this amendment, the applicable margin on the outstanding balance of $296.3 million was repriced to 3.5% from either 4.75% or 5.0% based on a leverage ratio in the original term loan. We paid $3.7 million of accrued interest, $3.0 million for a prepayment penalty, $1.3 million in arranger fees and $0.2 million in legal fees. There was no change to the terms of the revolving credit facility or the maturity date of the term loan. There was also no impact on financial covenants, liquidity or debt capacity.

We applied ASC 470-50 Debt - Modifications and Extinguishments to this transaction. After evaluating the criteria as applicable to syndicated loans, the re-pricing resulted in an extinguishment of debt for certain creditors whose balances were entirely re-paid. This repricing resulted in a debt modification for certain creditors whose terms were not substantially different before and after the amendment. The new fees paid and previously existing deferred financing costs were proportionally allocated between modification and extinguishment. Of the $4.4 million in fees, $3.1 million of the amendment fees were capitalized and are being amortized over the remaining term of the debt. New fees and previously existing deferred financing costs allocated to the extinguishment were included in the calculation of gain or loss on early extinguishment of debt, which resulted in a loss of $3.7 million and was recorded within other income (expense) in the consolidated statement of income and comprehensive income.

The credit agreement contains a number of covenants that impose operating and financial restrictions, including restrictions on us and our subsidiaries' ability to, among other things, incur additional indebtedness, pay dividends on or make distributions with respect to our capital stock, restrict certain transactions with affiliates, and sell certain key assets, primarily our ships. All of our debt is collateralized by our vessels. We believe that based on our cash on hand and expected future operating cash inflows, we will have sufficient cash flow to fund operations, meet our debt service requirements, and maintain compliance with the financial covenants under our credit agreements over the next twelve-month period.


The following schedule represents the maturities of long-term debt (in thousands):
For the twelve months ending March 31,
 
 
2014
 
 
$
750

2015
 
 
3,000

2016
 
 
3,000

2017
 
 
3,000

Thereafter
 
 
511,500


 
 
$
521,250

v2.4.0.6
Derivative Instruments, Hedging Activities and Fair Value Measurements
3 Months Ended
Mar. 31, 2013
Derivative Instruments, Hedging Activities and Fair Value Measurements [Abstract]  
Derivative Instruments, Hedging Activities and Fair Value Measurements
Derivative Instruments, Hedging Activities and Fair Value Measurements
We are exposed to market risks attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We manage these risks through a combination of our normal operating and financing activities and through the use of derivative financial instruments pursuant to our hedging practices and policies as described below. The financial impacts of these hedging instruments are primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the amount, term and conditions of the derivative instrument with the underlying risk being hedged. We do not hold or issue derivative financial instruments for trading or other speculative purposes. We monitor our derivative positions using techniques including market valuations and sensitivity analyses.
Fuel Price Risk
Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our vessels. We use fuel derivative swap agreements to mitigate the financial impact of fluctuations in fuel prices. The fuel swaps do not qualify for hedge accounting; therefore, the changes in fair value of these fuel derivatives are recorded in other income (expense) in the accompanying consolidated statements of income and comprehensive income. As of March 31, 2013, we have hedged the variability in future cash flows for forecast fuel consumption occurring through 2014. As of March 31, 2013 and December 31, 2012, we have entered into the following fuel swap agreements:
 
 
Fuel Swap Agreements
 
 
As of March 31, 2013
 
As of December 31, 2012
 
 
(in barrels)
2013
 
156,000

 
207,975

2014
 
108,750

 
108,750

 
 
 
 
 
 
 
 
 
 
 
 
Fuel Swap Agreements
 
 
As of March 31, 2013
 
As of December 31, 2012
 
 
(% hedged - estimated consumption)
2013
 
57
%
 
56
%
2014
 
29
%
 
29
%



We have certain fuel derivative contracts that are subject to margin requirements. For these specific fuel derivative contracts, on any business day, we may be required to post collateral if the mark-to-market exposure assessed at our parent company level exceeds $3.0 million. The amount of collateral required to be posted is an amount equal to the difference between the mark-to-market exposure and $3.0 million. At March 31, 2013, the fair market value of our derivative liability related to this counterparty was approximately $0.1 million. As of March 31, 2013 and December 31, 2012, we were not required to post any collateral for our fuel derivative instruments as the exposure at our parent company level did not exceed $3.0 million.
We had no derivative instruments qualifying and designated as hedging instruments on the consolidated financial statements as of March 31, 2013 or December 31, 2012.
At March 31, 2013 and December 31, 2012, the fair values and line item captions of derivative instruments not designated as hedging instruments under FASB ASC 815-20 were:
 
 
 
Fair Value as of
 
Fair Value as of
(in thousands)
Balance Sheet Location
 
March 31, 2013
 
December 31, 2012
 
 
 
 
 
 
Fuel hedges
Other current assets
 
$
1,103

 
$
747

Fuel hedges
Other long-term assets
 
661

 
816

 
Total Derivatives Assets
 
$
1,764

 
$
1,563

 
 
 
 
 
 
Fuel hedges
Current liabilities - Derivative liabilities
 
55

 
278

 
Total Derivatives Liabilities
 
$
55

 
$
278




The effects of derivative instruments not designated as hedging instruments on the consolidated financial statements for the three months ended March 31, 2013 and March 31, 2012 were:
 
Location of Gain Recognized in Income on Derivative Instruments
 
 
 
 
 
 
Amount of Gain Recognized in Income on Derivative Instruments
(in thousands)
 
For the Three Months Ended March 31,
 
 
2013
 
2012
 
 
 
 
 
 
Foreign currency swap
Other income (expense)
 
$

 
$
209

Fuel hedges
Other income (expense)
 
572

 
2,285

Total
 
 
$
572

 
$
2,494

 
 
 
 
 
 


Fair Value Measurements
U.S. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions which market participants would use in pricing the asset or liability based on the best available information under the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1 Inputs – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 Inputs – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability, either directly or indirectly.
Level 3 Inputs – Inputs that are unobservable for the asset or liability.
Fair Value of Financial Instruments
We use quoted prices in active markets when available to determine the fair value of our financial instruments. The fair value of our financial instruments that are not measured at fair value on a recurring basis are:
(in thousands)
 
Carrying Value as of
 
                        Fair Value as of
 
 
March 31,
2013
 
December 31,
2012
 
March 31,
2013
 
December 31,
2012
Long-term bank debt
(a)
$
294,282

 
$
293,358

 
$
300,240

 
$
321,972

Senior secured notes
 
225,000

 
225,000

 
244,125

 
239,063

Total
 
$
519,282

 
$
518,358

 
$
544,365

 
$
561,035

 
 
 
 
 
 
 
 
 
(a) The carrying value of the long-term bank debt is net of $2.0 million and $3.0 million of original issue discount as of March 31, 2013 and December 31, 2012, respectively.

Long-term bank debt: level 2 inputs were used to calculate the fair value of our long-term debt which was estimated using the present value of expected future cash flows which incorporates our risk profile. The valuation also takes into account debt maturity and interest rate based on the contract terms.
Senior secured notes: level 1 inputs were used to calculate the fair value of our Notes which was estimated using quoted market prices.
Other financial instruments: due to their short-term maturities and no interest rate, currency or price risk, the carrying amounts of cash and cash equivalents, passenger deposits, accrued interest, and accrued expenses approximate their fair values as of March 31, 2013 and December 31, 2012. We consider these inputs to be level 1 as all are observable and require no judgment for valuation.
The following table presents information about our financial instrument assets and liabilities that are measured at fair value on a recurring basis:
(in thousands)
 
As of March 31, 2013
 
As of December 31, 2012
Description
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
(a)
$
1,764

 
$

 
$
1,764

 
$

 
$
1,563

 
$

 
$
1,563

 
$

Total Assets
 
$
1,764

 
$

 
$
1,764

 
$

 
$
1,563

 
$

 
$
1,563

 
$

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
 
$
55

 
$

 
$
55

 
$

 
$
278

 
$

 
$
278

 
$

Total liabilities
 
$
55

 
$

 
$
55

 
$

 
$
278

 
$

 
$
278

 
$

(a) As of March 31, 2013, derivative financial instruments of $1.1 million and $0.7 million are classified as other current assets and other long-term assets, respectively, in the consolidated balance sheets. As of December 31, 2012, $0.7 million was classified as other current assets and $0.8 million was classified in other long-term assets.
Our derivative financial instruments in the table above consist of fuel hedge swaps. Fair value is derived using the valuation models that utilize the income value approach. These valuation models take into account the contract terms, such as maturity, and inputs, such as forward fuel prices, creditworthiness of the counter-party and us, as well as other data points. The data sources utilized in these valuation models that are significant to the fair value measurement are classified as Level 2 sources in the fair value input level hierarchy.
Non-recurring Measurements of Non-financial Assets
Goodwill and indefinite-lived intangible assets not subject to amortization are reviewed for impairment on an annual basis or earlier if there is an event or change in circumstances that would indicate that the carrying value of these assets could not be fully recovered. If the carrying amount exceeds the estimated discounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its fair value.
Other long-lived assets, such as our vessels, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value measured by undiscounted or discounted expected future cash flows would be considered Level 3 inputs.
Our annual impairment tests are performed as of September 30th. As of March 31, 2013, there were no events or changes in circumstances that would indicate that the carrying amount of our long-lived assets, goodwill and indefinite-lived intangible assets would not be recoverable.
v2.4.0.6
Commitments and Contingencies
3 Months Ended
Mar. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Contingencies – Litigation
On an ongoing basis, we assess the potential liabilities related to any lawsuits or claims brought against us. While it is typically very difficult to determine the timing and ultimate outcome of such actions, we use our judgment to determine if it is probable that we will incur an expense related to the settlement or final adjudication of such matters and whether a reasonable estimation of such probable loss can be made. In assessing probable losses, we take into consideration estimates of the amount of insurance recoveries, if any. We accrue a liability when we believe a loss is probable and the amount of loss can be reasonably estimated. The majority of claims are covered by insurance and we believe the outcome of such claims, net of estimated insurance recoveries, will not have a material adverse impact on our financial condition or results of operations and cash flows.

Other

As mandated by the Federal Maritime Commission for sailings from U.S. ports, the availability of passenger deposits received for future sailings is restricted until the completion of the related sailing in accordance with FMC regulations. We meet this obligation by posting a $15.0 million surety bond.



In October 2012, PCH entered into a software license agreement with a third party vendor. This agreement grants PCH a non-exclusive, perpetual, royalty-free license to use the software, which is shared between us and OCI. Our portion of the license fee is $1.1 million, of which $0.3 million was paid in 2012 and $0.5 million was paid during the three months ended March 31, 2013. The balance is expected to be paid in the second quarter of 2013.
On January 31, 2013 our former President stepped down from his role and became a consultant to us. We entered into a Separation Agreement and a Consulting Agreement with our former president. Severance of $0.7 million was paid in 2013 pursuant to his employment agreement. The Consulting Agreement has a term of 24 months and has been treated as an intangible asset. At inception the non-compete clause within the agreement was valued at $0.6 million and represents an intangible asset in accordance with ASC 350 - Intangibles. The intangible asset has a finite useful life and is being amortized over the term of the agreement. For the three months ended March 31, 2013, we paid $0.1 million under this agreement. Our estimated amortization expense is $0.3 million for each year for the periods ended December 31, 2013 and 2014.
On March 22, 2013, our Chairman and Chief Executive Officer agreed to amend and extend his executive employment agreement with PCI through December 31, 2016. The amendment modifies certain terms of his existing employment agreement.
v2.4.0.6
Consolidating Financial Information
3 Months Ended
Mar. 31, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Consolidating Financial Information
Consolidating Financial Information
Our $225.0 million senior secured notes are collateralized by our vessels and guaranteed fully and unconditionally, jointly and severally by all our subsidiaries (the "Guarantors," and each a "Guarantor"). These Guarantors are 100% owned subsidiaries of the Company.
The following condensed consolidating financial statements for Seven Seas Cruises S. DE R.L. and the Guarantors present condensed consolidating statements of income (loss) and comprehensive income (loss) for three months ended March 31, 2013 and 2012, condensed consolidating balance sheets as of March 31, 2013 and December 31, 2012 and condensed consolidating statements of cash flows for the three months ended March 31, 2013 and 2012, using the equity method of accounting, as well as elimination entries necessary to consolidate the parent company and all of its subsidiaries.
On February 4, 2013, Seven Seas Voyager and Seven Seas Navigator exited the UK tonnage tax regime and will no longer be required to abide by certain UK specific regulations. Also on this date, we transferred these ships to new legal entities domiciled in the United States. The new vessel-owning subsidiaries are each a Guarantor. These transactions had no impact on our subsidiary guarantor financial statements within our condensed consolidating financial statements. Previously, Seven Seas Cruises S. DE R.L had charter hire agreements in place with the two UK subsidiaries, which previously owned the Seven Seas Voyager and Seven Seas Navigator. These agreements required Seven Seas Cruises S. DE R.L. to pay a daily hire fee to the subsidiary to administratively manage the vessels. The costs incurred by the vessel owning subsidiaries included deck and engine crew payroll and expenses, vessel insurance, depreciation and interest related to the terms loans. In addition to the vessel owning subsidiaries, we have a sales and marketing office that is a Guarantor.



Our vessel-owning subsidiaries were parties to our first lien term loan as both borrowers and guarantors. The applicable outstanding debt related to the first lien term loan is included in the Guarantor accounts as well as the related interest expense and deferred financing costs through August 2012. In August 2012, Seven Seas Cruises S. DE R.L. repaid its first lien term loan and concurrently entered into a new credit agreement. As a result of this transaction, our vessel-owning subsidiaries are only guarantors on the new credit agreement. In 2011, Seven Seas Cruises S. DE R.L repaid the second lien term loan. As the loan was repaid by Seven Seas Cruises S. DE R.L., the parent company, each subsidiary remains responsible for its portion of the related debt to Seven Seas Cruises S. DE R.L. and such obligation was recorded as an intercompany payable at the subsidiary level and eliminated within the condensed consolidating balance sheets.
Each subsidiary guarantee will be automatically released upon any one or more of the following circumstances: the subsidiary is sold or sells all of its assets; the subsidiary is declared “unrestricted” for covenant purposes; the subsidiary’s guarantee of other indebtedness is terminated or released; the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied; or the subsidiary transfers ownership of a mortgaged vessel in connection with a permitted reflagging transaction.
During the first quarter of 2013, we determined that we did not properly classify $1.5 million of depreciation expense in our condensed consolidating financial information footnote in our first quarter of 2012 interim period and year-ended December 31, 2012. We should have presented the $1.5 million of vessel refurbishment depreciation expense in the Parent column instead of in the Subsidiaries Guarantors column. In addition, we determined that certain intercompany transactions for the first quarter of 2012 were incorrectly classified. As a result, the Subsidiaries related party revenue should have been $3.6 million higher at $26.8 million and the Subsidiaries cruise operating expense should have been $0.4 million higher at $8.1 million. These revisions have no impact on the consolidated balance sheet, statement of income (loss) and comprehensive income (loss) or statement of cash flows for any period presented. In accordance with accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 99, Materiality), we assessed the materiality of the errors and concluded that the error was not material to any of our previously issued financial statements. We will revise our previously issued financial statements in future filings.


Condensed Consolidating Balance Sheets
 
As of March 31, 2013
(in thousands)
Parent

Subsidiaries Guarantors

Eliminations

Consolidated
Assets








Current assets







Cash and cash equivalents
$
118,445


$
1,498


$


$
119,943

Trade and other receivable, net
10,232


207




10,439

Related party receivables
2,639


(198
)



2,441

Inventories
3,874


2,674




6,548

Prepaid expenses
17,713


1,301




19,014

Intercompany receivable
354,111


40,827


(394,938
)


Other current assets
3,688






3,688

Total current assets
510,702


46,309


(394,938
)

162,073

Property and equipment, net
73,950


558,378




632,328

Goodwill
404,858






404,858

Intangible assets, net
83,478






83,478

Other long-term assets
33,067






33,067

Investment in subsidiaries
247,328




(247,328
)


Total assets
$
1,353,383


$
604,687


$
(642,266
)

$
1,315,804









Liabilities and Members' Equity







Current liabilities







Trade and other payables
$
2,253


$
625


$


$
2,878

Intercompany payables
40,827


354,111


(394,938
)


Accrued expenses
45,755


2,623




48,378

Passenger deposits
188,965






188,965

Derivative liabilities
55






55

Current portion of long-term debt
745






745

Total current liabilities
278,600


357,359


(394,938
)

241,021

Long-term debt
518,537






518,537

Other long-term liabilities
12,410






12,410

Total liabilities
809,547


357,359


(394,938
)

771,968

Commitments and Contingencies







Members' equity







Contributed capital
564,624


134,036


(134,036
)

564,624

Accumulated (deficit) earnings
(20,788
)

113,292


(113,292
)

(20,788
)
Total members' equity
543,836


247,328


(247,328
)

543,836

Total liabilities and members' equity
$
1,353,383


$
604,687


$
(642,266
)

$
1,315,804



Condensed Consolidating Balance Sheets

As of December 31, 2012
(in thousands)
Parent

Subsidiaries Guarantors

Eliminations

Consolidated
Assets







Current assets







Cash and cash equivalents
$
98,815


$
1,042


$


$
99,857

Trade and other receivable, net
7,076


203




7,279

Related party receivables
1,798






1,798

Inventories
4,350


2,222




6,572

Prepaid expenses
15,971


1,857




17,828

Intercompany receivable
369,828


40,910


(410,738
)


Other current assets
2,692






2,692

Total current assets
500,530


46,234


(410,738
)

136,026

Property and equipment, net
74,070


563,254




637,324

Goodwill
404,858






404,858

Intangible assets, net
83,556






83,556

Other long-term assets
32,950






32,950

Investment in subsidiaries
236,220




(236,220
)


Total assets
$
1,332,184


$
609,488


$
(646,958
)

$
1,294,714









Liabilities and Members' Equity







Current liabilities







Trade and other payables
$
3,557


$
926




$
4,483

Related party payables


131




131

Intercompany payables
40,910


369,828


(410,738
)


Accrued expenses
41,350


2,383




43,733

Passenger deposits
169,463






169,463

Derivative liabilities
278






278

Total current liabilities
255,558


373,268


(410,738
)

218,088

Long-term debt
518,358






518,358

Other long-term liabilities
9,635






9,635

Total liabilities
783,551


373,268


(410,738
)

746,081

Commitments and Contingencies







Members' equity







Contributed capital
564,372


134,036


(134,036
)

564,372

Accumulated (deficit) earnings
(15,739
)

102,184


(102,184
)

(15,739
)
Total members' equity
548,633


236,220


(236,220
)

548,633

Total liabilities and members' equity
$
1,332,184


$
609,488


$
(646,958
)

$
1,294,714





Condensed Consolidating Statements of Income (Loss) and Comprehensive Income (Loss)
 
Three Months Ended March 31, 2013
(in thousands)
Parent

Subsidiaries Guarantors

Eliminations

Consolidated
Revenue







Passenger ticket
$
113,438


$


$


$
113,438

Onboard and other
10,879






10,879

Related Party Revenue


27,639


(27,639
)


Total revenue
124,317


27,639


(27,639
)

124,317

Cruise operating expense







Commissions, transportation and other
39,915


1,998


(1,998
)

39,915

Onboard and other
2,666


14




2,680

Payroll, related and food
16,015


3,321




19,336

Fuel
11,477






11,477

Other ship operating
6,593


3,046




9,639

Other
24,024


1,141


(23,916
)

1,249

Total cruise operating expense
100,690


9,520


(25,914
)

84,296

Selling and administrative
21,946


2,059


(1,725
)

22,280

Depreciation and amortization
4,376


4,877




9,253

Total operating expense
127,012


16,456


(27,639
)

115,829

Operating (loss) income
(2,695
)

11,183




8,488

Non-operating income (expense)







Interest expense
(10,048
)





(10,048
)
Interest income
74


1




75

Other income (expense)
(3,419
)

(66
)



(3,485
)
Equity in earnings of subsidiaries
11,107




(11,107
)


Total non-operating income (expense)
(2,286
)

(65
)

(11,107
)

(13,458
)
Income (loss) before income taxes
(4,981
)

11,118


(11,107
)

(4,970
)
Income tax expense, net
(68
)

(11
)



(79
)
Net (loss) income
(5,049
)

11,107


(11,107
)

(5,049
)
Total comprehensive (loss) income
$
(5,049
)

$
11,107


$
(11,107
)

$
(5,049
)
Condensed Consolidating Statements of Income and Comprehensive Income

Three Months Ended March 31, 2012
(in thousands)
Parent

Subsidiaries Guarantors

Eliminations

Consolidated
Revenue







Passenger ticket
$
110,128


$


$


$
110,128

Onboard and other
11,288






11,288

Related Party Revenue


26,802


(26,802
)


Total revenue
121,416


26,802


(26,802
)

121,416

Cruise operating expense







Commissions, transportation and other
40,761


1,992


(1,931
)

40,822

Onboard and other
2,256






2,256

Payroll, related and food
15,720


3,056




18,776

Fuel
12,113






12,113

Other ship operating
7,404


1,927




9,331

Other
23,403


1,128


(23,251
)

1,280

Total cruise operating expense
101,657


8,103


(25,182
)

84,578

Selling and administrative
20,818


1,949


(1,620
)

21,147

Depreciation and amortization
3,396


6,279




9,675

Total operating expense
125,871


16,331


(26,802
)

115,400

Operating (loss) income
(4,455
)

10,471




6,016

Non-operating income (expense)







Interest expense
(6,149
)

(1,936
)



(8,085
)
Interest income
102


1




103

Other income (expense)
2,492


21




2,513

Equity in earnings of subsidiaries
8,545




(8,545
)


Total non-operating income (expense)
4,990


(1,914
)

(8,545
)

(5,469
)
Income before income taxes
535


8,557


(8,545
)

547

Income tax expense, net
(177
)

(12
)



(189
)
Net income
358


8,545


(8,545
)

358

Total comprehensive income
$
358


$
8,545


$
(8,545
)

$
358










Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, 2013
(in thousands)
Parent

Subsidiaries Guarantors

Eliminations

Consolidated
Net cash provided by operating activities
$
26,207


$
495


$


$
26,702

Cash flows from investing activities







Purchases of property and equipment
(3,337
)





(3,337
)
Restricted cash
(25
)





(25
)
Acquisition of intangible assets
(90
)





(90
)
Net cash used in investing activities
(3,452
)





(3,452
)
Cash flows from financing activities







Debt issuance costs
(955
)





(955
)
Deferred payment to acquire intangible asset
(2,000
)





(2,000
)
Net cash used in financing activities
(2,955
)





(2,955
)
Effect of exchange rate changes on cash and cash equivalents
(170
)

(39
)



(209
)
Net increase in cash and cash equivalents
19,630


456




20,086

Cash and cash equivalents







Cash and cash equivalents at beginning of period
98,815


1,042




99,857

Cash and cash equivalents at end of period
$
118,445


$
1,498


$


$
119,943

Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, 2012
(in thousands)
Parent

Subsidiaries Guarantors

Eliminations

Consolidated
Net cash provided by (used in) operating activities
$
18,133


$
(214
)

$


$
17,919

Cash flows from investing activities







Purchases of property and equipment
(4,913
)





(4,913
)
Restricted cash
205






205

Net cash used in investing activities
(4,708
)





(4,708
)
Cash flows from financing activities







Debt issuance costs
(130
)





(130
)
Deferred payment to acquire intangible asset
(2,000
)





(2,000
)
Net cash used in financing activities
(2,130
)





(2,130
)
Effect of exchange rate changes on cash and cash equivalents
64


14




78

Net increase (decrease) in cash and cash equivalents
11,359


(200
)



11,159

Cash and cash equivalents







Cash and cash equivalents at beginning of period
67,771