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v2.4.0.6
Document and Entity Information Document
6 Months Ended
Jun. 30, 2012
Entity Information [Line Items]  
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 Jun. 30, 2012
Document Fiscal Year Focus 2012
Document Fiscal Period Focus Q2
Amendment Flag false
Entity Common Stock, Shares Outstanding 0
v2.4.0.6
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2012
Dec. 31, 2011
Jun. 30, 2011
Dec. 31, 2010
Current assets        
Cash and cash equivalents $ 106,689 $ 68,620 $ 97,253 $ 37,258
Restricted cash 234 743    
Trade and other receivables, net 9,975 8,319    
Related party receivables 0 748    
Inventories 6,013 5,132    
Prepaid expenses 20,396 19,149    
Other current assets 3,322 4,165    
Total current assets 146,629 106,876    
Property and equipment, net 653,259 655,360    
Goodwill 404,858 404,858    
Intangible assets, net 84,838 86,120    
Other long-term assets 29,999 30,576    
Total assets 1,319,583 1,283,790    
Current liabilities        
Trade and other payables 1,821 5,752    
Related party payables 1,474 0    
Accrued expenses 47,074 41,782    
Passenger deposits 196,817 159,312    
Derivative liabilities 2,405 112    
Current portion of long-term debt 12,500 0    
Total current liabilities 262,091 206,958    
Long-term debt 506,000 518,500    
Other long-term liabilities 9,823 13,694    
Total liabilities 777,914 739,152    
Commitments and contingencies         
Members' equity        
Contributed capital 563,863 563,365    
Accumulated deficit (22,194) (18,727)    
Total members' equity 541,669 544,638    
Total liabilities and members' equity $ 1,319,583 $ 1,283,790    
v2.4.0.6
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2012
Mar. 31, 2012
Jun. 30, 2011
Mar. 31, 2011
Jun. 30, 2012
Jun. 30, 2011
Revenue            
Passenger ticket $ 119,548   $ 110,185   $ 228,120 $ 203,453
Onboard and other 11,932   12,664   23,220 23,167
Total revenue 131,480   122,849   251,340 226,620
Cruise operating expense            
Commissions, transportation and other 46,468   38,718   85,734 67,224
Onboard and other 3,153   3,608   5,409 5,252
Payroll, related and food 19,245   17,699   38,021 35,186
Fuel 10,435   10,263   22,547 20,612
Other ship operating 11,040   9,820   20,371 18,947
Other 5,844   5,283   7,124 6,323
Total cruise operating expense 96,185   85,391   179,206 153,544
Other operating expense            
Selling and administrative 16,854   16,974   38,001 38,172
Depreciation and amortization 9,868   9,224   19,543 18,037
Total operating expense 122,907   111,589   236,750 209,753
Operating income 8,573   11,260   14,590 16,867
Non-operating income (expense)            
Interest income 122   50   225 64
Interest expense (7,982)   (7,394)   (16,066) (15,412)
Other income (expense) (4,527)   (7,026)   (2,015) (3,098)
Total non-operating expense (12,387)   (14,370)   (17,856) (18,446)
Loss before income taxes (3,814)   (3,110)   (3,266) (1,579)
Income tax benefit (expense) (11)   108   (201) 50
Net loss (3,825)   (3,002)   (3,467) (1,529)
Other comprehensive income, net of tax:            
Loss on change in derivative fair value 0    0 2,814 0 (2,814)
Total comprehensive loss $ (3,825)   $ (3,002)   $ (3,467) $ (4,343)
v2.4.0.6
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Cash flows from operating activities    
Net loss $ (3,467) $ (1,529)
Adjustments:    
Depreciation and amortization 19,543 18,037
Amortization of deferred financing costs 1,577 1,916
Accretion of debt discount 218 168
Stock-based compensation 499 428
Unrealized loss (gain) on derivative contracts 2,710 (1,316)
Loss on early extinguishment of debt 0 7,502
Other, net 275 7
Changes in operating assets and liabilities:    
Trade and other accounts receivable (909) 5,253
Prepaid expenses and other current assets (1,240) (7,591)
Inventories (881) (1,904)
Accounts payable and accrued expenses 52 505
Passenger deposits 35,689 38,284
Net cash provided by operating activities 54,066 59,760
Cash flows from investing activities    
Purchases of property and equipment (14,135) (11,840)
Changes in restricted cash 509 (20,167)
Acquisition of intangible assets 0 (4,445)
Net cash used in investing activities (13,626) (36,452)
Cash flows from financing activities    
Repayment of debt 0 (180,786)
Proceeds from the issuance of senior secured notes 0 225,000
Debt issuance costs (374) (6,562)
Deferred intangible asset payment (2,000) 0
Costs associated with the early extinguishment of debt 0 (1,393)
Net cash (used in) provide by financing activities (2,374) 36,259
Effect of exchange rate changes on cash and cash equivalents 3 428
Net increase in cash and cash equivalents 38,069 59,995
Cash and cash equivalents    
Beginning of period 68,620 37,258
End of period $ 106,689 $ 97,253
v2.4.0.6
Basis of Presentation
6 Months Ended
Jun. 30, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
Basis of Presentation
Seven Seas Cruises S. DE R.L. (“SSC”, “Company”, “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 wholly-owned subsidiary of our ultimate parent company, Prestige Cruises International, Inc. (“PCI”). PCI is controlled by funds affiliated with Apollo Global Management, LLC.
The accompanying interim consolidated financial statements include the accounts of SSC and its wholly-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 without audit. 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 June 30, 2012 and the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and six months ended June 30, 2012 and 2011 and Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 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, 2011 and notes thereto included in the fifth amendment to our registration statement on Form S-4 (333-178244) filed with the Securities and Exchange Commission on May 7, 2012. Our operations are seasonal, and results from our interim periods are not necessarily indicative of the results to be expected for the entire year.
New Accounting Pronouncements - As of January 1, 2012, we adopted Financial Accounting Standards Board ASU 2011-08, Intangibles - Goodwill and Other (Topic 350). This updated standard allows a company to perform a quantitative analysis prior to its two step impairment test. If this analysis does not result in a more likely than not conclusion that impairment exists, then performing the two step impairment test is no longer required. This change did not have any impact on our consolidated financial condition, results of comprehensive income (loss) or cash flows.
As of January 1, 2012, we adopted Financial Accounting Standards Board ASU 2011-05, Presentation of Comprehensive Income (Topic 220). This updated standard has changed the presentation of our financial statements as it required presentation of comprehensive income (loss) in either a single continuous statement of comprehensive income (loss) or in two separate, but consecutive statements. We have elected to present this information on a single continuous statement. This change did not have any impact on our consolidated financial condition, results of comprehensive income (loss) or cash flows.
As of January 1, 2012 we adopted Financial Accounting Standards Board ASU 2011-04, Fair Value Measurement (Topic 820). This standard increased the disclosure requirements for each class of assets and liabilities that is not measured at fair value in the balance sheet, but for which fair value is disclosed within the notes to the financial statements. This change did not have any impact on our consolidated financial condition, results of comprehensive income (loss) or cash flows.
As of January 1, 2012 we adopted Financial Accounting Standards Board ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. This standard delays the presentation requirements for reclassifying items out of accumulated other comprehensive income (loss) as noted in Financial Accounting Standards Board ASU 2011-12. This change did not have any impact on our consolidated financial condition, results of comprehensive income (loss) or cash flows.
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-06, Comprehensive Income (Topic 820). This accounting standard update eliminates the option to present components of other comprehensive income (loss) as part of the statement of equity and requires the total of comprehensive income (loss), the components of net income (loss), and the components of other comprehensive income (loss) be presented either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements. It also requires presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income (loss) to net income (loss) in the statement(s) where the components of net income (loss) and the components of other comprehensive income (loss) are presented. This accounting standard update became effective on January 1, 2012. In December 2011, the FASB issued ASU No. 2011-12 which indefinitely defers the guidance related to the presentation of reclassification adjustments only. The adoption of this accounting standard update resulted in financial statement presentation changes only.
v2.4.0.6
Property and Equipment, net
6 Months Ended
Jun. 30, 2012
Property, Plant and Equipment [Abstract]  
Property and Equipment, net
Property and Equipment, net
During the six months ended June 30, 2012, property and equipment, net decreased $2.1 million. Capital expenditures totaled $9.2 million and $7.8 million for the three months ended June 30, 2012 and 2011, respectively, and $14.1 million and $11.8 million for the six months ended June 30, 2012 and 2011, respectively. Depreciation expense on assets in service was $9.1 million and $8.6 million for the three months ended June 30, 2012 and 2011, respectively, and $18.1 million and $16.7 million for the six months ended June 30, 2012 and 2011, respectively.
v2.4.0.6
Debt
6 Months Ended
Jun. 30, 2012
Debt Disclosure [Abstract]  
Debt
    Debt
 
June 30,
 
December 31,
(in thousands)
2012
 
2011
 
 
 
 
$425 million term loan, currently LIBOR plus 1.75%, due through 2014
$
293,500

 
$
293,500

$225 million senior secured notes, 9.125%, due 2019
225,000

 
225,000

 
518,500

 
518,500

Less: Current portion of long-term debt
12,500

 

Long-term portion
$
506,000

 
$
518,500


Interest expense on third-party debt, including interest rate swaps in 2011, was $6.9 million and $6.0 million for the three months ended June 30, 2012 and 2011, respectively, and $13.8 million and $12.8 million for the six months ended June 30, 2012 and 2011, respectively.
v2.4.0.6
Derivative Instruments, Hedging Activities and Fair Value Measurements
6 Months Ended
Jun. 30, 2012
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.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates to our long-term debt obligations including future interest payments. We use interest rate swap agreements to modify our exposure to interest rate fluctuations and to manage our interest expense. During 2008, we entered into an interest rate swap agreement with a notional amount of $400.0 million to limit the interest rate exposure related to our long-term debt. This interest rate swap, which matured on February 14, 2011, was designated as a cash flow hedge and the change in fair value of the effective portion of the interest rate swap was recorded as a component of accumulated other comprehensive loss in the accompanying consolidated balance sheet. There were no interest rate swaps outstanding as of June 30, 2012 and December 31, 2011.
Foreign Currency Exchange Risk
Our exposure to foreign currency exchange rate risk relates to our euro denominated vessel dry-dock and other operational expenses. We enter into foreign currency swaps to limit the exposure to movements in the foreign currency exchange rates. The foreign currency swaps do not qualify for hedge accounting; therefore, the changes in fair value of these foreign currency derivatives are recorded in other income (expense) in the accompanying consolidated statements of income (loss) and comprehensive income (loss). The total aggregate notional amount of outstanding foreign currency swap agreements as of June 30, 2012 and December 31, 2011 was €2.0 million ($2.7 million) and €3.9 million ($5.2 million), respectively.
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 (loss) and comprehensive income (loss). As of June 30, 2012, we have hedged the variability in future cash flows for forecasted fuel consumption occurring through 2014. As of June 30, 2012 and December 31, 2011, we have entered into the following fuel swap agreements:
 
Fuel Swap Agreements
 
As of June 30, 2012

 
As of December 31, 2011

 
(in barrels)
2012
157,500

 
156,300

2013
203,025

 

2014
108,750

 

 
 
 
 
 
 
 
 
 
Fuel Swap Agreements
 
As of June 30, 2012

 
As of December 31, 2011

 
(% hedged)
2012
80
%
 
39
%
2013
52
%
 
%
2014
28
%
 
%



Our fuel derivative contracts are subject to certain margin requirements. 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 exposure (cost of liquidating and terminating the derivative position) and $3.0 million at our parent company level. As of June 30, 2012 and December 31, 2011, 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.
At June 30, 2012 and December 31, 2011, the fair values and line item captions of derivative instruments recorded were as follows:
Derivatives not designated as hedging instruments under FASB ASC 815-20
 
 
 
 
 
 
 
 
 
Fair Value as of
 
Fair Value as of
(in thousands)
Balance Sheet Location
 
June 30, 2012
 
December 31, 2011
 
 
 
 
 
 
Foreign currency swap
Other current assets
 
$
77

 
$

Fuel hedges
Other current assets
 

 
489

Fuel hedges
Other long-term assets
 
129

 

 
Total Derivatives Assets
 
$
206

 
$
489

 
 
 
 
 
 
Foreign currency swap
Current liabilities - Derivative liabilities
 
$
119

 
$
112

Fuel hedges
Current liabilities - Derivative liabilities
 
2,286

 

Fuel hedges
Other long-term liabilities
 
134

 

 
Total Derivatives Liabilities
 
$
2,539

 
$
112




We had no derivative instruments qualifying and designated as hedging instruments on the consolidated financial statements as of June 30, 2012.
The effect of derivative instruments qualifying and designated as hedging instruments on the consolidated financial statements for the three and six months ended June 30, 2011 was as follows:
(in thousands)
Amount of Gain/(Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
 
Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
 
Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion excluded from Effectiveness Testing)
 
Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion excluded from Effectiveness Testing)
 
 
 
 
 
 
 
 
 
 
Interest rate swap
$
(2,814
)
 
 Interest expense
 
$
(2,814
)
 
N/A
 
$

Total
$
(2,814
)
 
 
 
$
(2,814
)
 
 
 
$




The effect of derivative instruments not designated as hedging instruments on the consolidated financial statements for the three and six months ended June 30, 2012 and 2011 was as follows:
 
Location of Gain/(Loss) Recognized in Income on Derivative
 
 
 
 
 
 
Amount of Gain / (Loss) Recognized in Income on Derivative
 
 
For the Three Months Ended June 30,
(in thousands)
 
2012
 
2011
 
 
 
 
 
 
Foreign currency swap
Other income (expense)
 
$
(216
)
 
$

Fuel hedges
Other income (expense)
 
(3,687
)
 
394

Total
 
 
$
(3,903
)
 
$
394

 
 
 
 
 
 
 
 
 
 
 
 
 
Location of Gain/(Loss) Recognized in Income on Derivative
 
Amount of Gain / (Loss) Recognized in Income on Derivative
 
 
For the Six Months Ended June 30,
(in thousands)
 
2012
 
2011
 
 
 
 
 
 
Foreign currency swap
Other income (expense)
 
$
(7
)
 
$

Fuel hedges
Other income (expense)
 
(1,402
)
 
4,097

Total
 
 
$
(1,409
)
 
$
4,097



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 as follows:
 
Carrying Value as of
 
Fair Value as of
(in thousands)
June 30,
2012
 
December 31,
2011
 
June 30,
2012
 
December 31,
2011
Long-term bank debt
$
293,500

 
$
293,500

 
$
284,853

 
$
275,338

Senior secured notes
225,000

 
225,000

 
232,313

 
226,133

Total
$
518,500

 
$
518,500

 
$
517,166

 
$
501,471



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, accounts receivable, accounts payable, accrued interest, and accrued expenses approximate their fair values as of June 30, 2012 and December 31, 2011.
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 June 30, 2012
 
As of December 31, 2011
Description
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
(a)
$
206

 
$

 
$
206

 
$

 
$
489

 
$

 
$
489

 
$

Total Assets
 
$
206

 
$

 
$
206

 
$

 
$
489

 
$

 
$
489

 
$

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
(b)
$
2,539

 
$

 
$
2,539

 
$

 
$
112

 
$

 
$
112

 
$

Total liabilities
 
$
2,539

 
$

 
$
2,539

 
$

 
$
112

 
$

 
$
112

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) As of June 30, 2012, derivative financial instruments assets of $0.1 million and $0.1 million are classified as other current assets and other long-term assets, respectively, in the consolidated balance sheets. As of December 31, 2011, $0.5 million was classified as other current assets.
(b) As of June 30, 2012, derivative financial instruments liabilities of $2.4 million and $0.1 million are classified as current liabilities-derivative liabilities and other long-term liabilities, respectively, in the consolidated balance sheets. As of December 31, 2011, $0.1 million was classified as current liabilities-derivative liabilities.
Our derivative financial instruments consist of an interest rate swap, foreign currency exchange contracts and 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 interest rates, forward fuel prices, discount rates, creditworthiness of the counterparty 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. During the second quarter of 2012, the Seven Seas Navigator underwent a dry-dock, in which significant improvements were made. Due to the significant costs added to its carrying value, we performed an impairment review utilizing an undiscounted cash flow analysis. The principle assumptions used in the undiscounted cash model were projected operating results, including net per diems, net cruise costs, projected occupancy, available passenger days, and projected growth. Upon performing the impairment review, we determined that the revised carrying amount of the vessel is recoverable and therefore not impaired as of June 30, 2012. Our annual impairment tests are performed as of September 30th.
v2.4.0.6
Commitments and Contingencies
6 Months Ended
Jun. 30, 2012
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
During February 2012, we made a $2.0 million payment for previously acquired intangible assets related to Regent licensing rights acquired in 2011. As of June 30, 2012, we have a remaining liability of $2.0 million due in February 2013.
    





During March 2012, management signed a 5-year maintenance agreement with a vendor. The cost of future maintenance contract obligations as of June 30, 2012 is approximately $14.4 million. The contract consists of multiple cost components. Monthly variable maintenance fees are based on engine usage over the contract term. Monthly fixed fees are based on a per vessel basis. We are also required to purchase a certain amount of capital equipment and spare parts. Equipment will be recorded as property and equipment upon receipt and maintenance fees are recorded as repair and maintenance expenses. As of June 30, 2012 we pre-paid $1.0 million for capital equipment, which is recorded in Prepaid expenses in the accompanying consolidated balance sheet.


During April 2012, our Chief Operating Officer was granted 600,000 options to purchase PCI shares according to his employment contract. These options are time based and vest over 3 years on his employment anniversary date. The contractual term of these options are 8 years and forfeiture percentage is estimated as 0%. Total compensation expense for these options was calculated at our parent company level. The fair value was estimated on the date of grant using the Black-Scholes model which includes the fair value of PCI common stock determined at the approximate grant date. The estimated fair value of these stock options, less estimated forfeitures, totaled $1.4 million and is amortized over the vesting period using the graded-vesting method. As our Chief Operating Officer provides services to both us and Oceania Cruises, Inc., our sister company, the related compensation costs are allocated on an agreed percentage. The allocated compensation expense was approximately $0.2 million for the three and six months ended June 30, 2012.
v2.4.0.6
Accumulated Other Comprehensive Loss
6 Months Ended
Jun. 30, 2012
Equity [Abstract]  
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss
The following table summarizes activity within accumulated other comprehensive loss:
 
 
(in thousands)
2012
 
2011
Accumulated other comprehensive loss - January 1
$

 
$
(2,814
)
Quarterly change in derivative fair value


 
2,814

Accumulated other comprehensive loss - March 31
$

 
$

Quarterly change in derivative fair value

 

Accumulated other comprehensive loss - June 30
$

 
$

v2.4.0.6
Subsequent Events
6 Months Ended
Jun. 30, 2012
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events
On August 1, 2012, we held a meeting with potential investors to discuss the refinance of our existing credit facility with a new $340 million senior secured credit facility. The meeting was preliminary in nature, and at this time we have not committed to complete a refinancing, nor can we state the terms on which any such refinancing would be achieved.
v2.4.0.6
Consolidating Financial Information
6 Months Ended
Jun. 30, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Consolidating Financial Information
Consolidating Financial Information
Our 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 and six months ended June 30, 2012 and 2011, condensed consolidating balance sheets as of June 30, 2012 and December 31, 2011 and condensed consolidating statements of cash flows for the six months ended June 30, 2012 and 2011, using the equity method of accounting, as well as elimination entries necessary to consolidate the parent company and all of its subsidiaries.
Seven Seas Cruises S. DE R.L. has charter hire agreements in place with certain subsidiaries, which own the vessels. These agreements require Seven Seas Cruises S. DE R.L. to pay a daily hire fee to the subsidiary to administratively manage the vessel. The costs incurred by the vessel owning subsidiaries include 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 also a Guarantor.
Our vessel owning subsidiaries are 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. In 2011, Seven Seas Cruises S. DE R.L repaid the second lien term loan. As the loan was repaid by 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 2011 condensed consolidated balance sheet.
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.
Condensed Consolidating Balance Sheets
 
As of June 30, 2012
(in thousands)
Parent 'Issuer'
 
Subsidiaries Guarantors
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
Current assets
 
 
 
 

 
 
Cash and cash equivalents
$
104,586

 
$
2,103

 
$

 
$
106,689

Restricted cash
234

 

 

 
234

Trade and other receivable, net
9,843

 
132

 

 
9,975

Related party receivables

 

 

 

Inventories
4,082

 
1,931

 

 
6,013

Prepaid expenses
19,763

 
633

 

 
20,396

Intercompany receivable
155,211

 
35,706

 
(190,917
)
 

Other current assets
1,328

 
1,994

 

 
3,322

Total current assets
295,047

 
42,499

 
(190,917
)
 
146,629

Property and equipment, net
73,292

 
579,967

 

 
653,259

Goodwill
404,858

 

 

 
404,858

Intangible assets, net
84,838

 

 

 
84,838

Other long-term assets
27,817

 
2,182

 

 
29,999

Investment in subsidiaries
222,393

 

 
(222,393
)
 

Total assets
$
1,108,245

 
$
624,648

 
$
(413,310
)
 
$
1,319,583

 
 
 
 
 
 
 
 
Liabilities and Members' Equity
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Trade and other payables
$
1,155

 
$
666

 
$

 
$
1,821

Related party payables
1,474

 

 

 
1,474

Intercompany payables
35,706

 
155,211

 
(190,917
)
 

Accrued expenses
44,952

 
2,122

 

 
47,074

Passenger deposits
196,817

 

 

 
196,817

Derivative liabilities
2,405

 

 

 
2,405

Current portion of long-term debt
2,097

 
10,403

 

 
12,500

Total current liabilities
284,606

 
168,402

 
(190,917
)
 
262,091

Long-term debt
272,147

 
233,853

 

 
506,000

Other long-term liabilities
9,823

 

 

 
9,823

Total liabilities
566,576

 
402,255

 
(190,917
)
 
777,914

Commitments and Contingencies
 
 
 
 
 
 
 
Members' equity
 
 
 
 
 
 
 
Contributed capital
563,863

 
134,036

 
(134,036
)
 
563,863

Accumulated deficit
(22,194
)
 
88,357

 
(88,357
)
 
(22,194
)
Total members' equity
541,669

 
222,393

 
(222,393
)
 
541,669

Total liabilities and members' equity
$
1,108,245

 
$
624,648

 
$
(413,310
)
 
$
1,319,583



Condensed Consolidating Balance Sheets

As of December 31, 2011
(in thousands)
Parent 'Issuer'

Subsidiaries Guarantors

Eliminations

Consolidated
Assets







Current assets







Cash and cash equivalents
$
67,771


$
849


$


$
68,620

Restricted cash
743






743

Trade and other receivable, net
8,242


77




8,319

Related party receivables
748






748

Inventories
3,284


1,848




5,132

Prepaid expenses
17,637


1,512




19,149

Intercompany receivable
176,672


30,849


(207,521
)


Other current assets
2,171


1,994




4,165

Total current assets
277,268


37,129


(207,521
)

106,876

Property and equipment, net
66,446


588,914




655,360

Goodwill
404,858






404,858

Intangible assets, net
86,120






86,120

Other long-term assets
27,416


3,160




30,576

Investment in subsidiaries
205,634




(205,634
)


Total assets
$
1,067,742


$
629,203


$
(413,155
)

$
1,283,790









Liabilities and Members' Equity







Current liabilities







Trade and other payables
$
5,250


$
502


$


$
5,752

Intercompany payables
30,849


176,672


(207,521
)


Accrued expenses
39,642


2,140




41,782

Passenger deposits
159,312






159,312

Derivative liabilities
112






112

Total current liabilities
235,165


179,314


(207,521
)

206,958

Long-term debt
274,245


244,255




518,500

Other long-term liabilities
13,694






13,694

Total liabilities
523,104


423,569


(207,521
)

739,152

Commitments and Contingencies







Members' equity







Contributed capital
563,365


129,702


(129,702
)

563,365

Accumulated deficit
(18,727
)

75,932


(75,932
)

(18,727
)
Total members' equity
544,638


205,634


(205,634
)

544,638

Total liabilities and members' equity
$
1,067,742


$
629,203


$
(413,155
)

$
1,283,790





Condensed Consolidating Statements of Income (Loss) and Comprehensive Income (Loss)
 
Three Months Ended June 30, 2012
(in thousands)
Parent 'Issuer'
 
Subsidiaries Guarantors
 
Eliminations
 
Consolidated
Revenue
 
 
 
 
 
 
 
Passenger ticket
$
119,548

 
$

 
$

 
$
119,548

Onboard and other
11,926

 
6

 

 
11,932

Related Party Revenue

 
26,302

 
(26,302
)
 

Total revenue
131,474

 
26,308

 
(26,302
)
 
131,480

Cruise operating expense
 
 
 
 
 
 
 
Commissions, transportation and other
46,492

 
1,407

 
(1,431
)
 
46,468

Onboard and other
3,153

 

 

 
3,153

Payroll, related and food
16,171

 
3,074

 

 
19,245

Fuel
10,435

 

 

 
10,435

Other ship operating
7,505

 
3,535

 

 
11,040

Other
27,989

 
1,106

 
(23,251
)
 
5,844

Total cruise operating expense
111,745

 
9,122

 
(24,682
)
 
96,185

Selling and administrative
16,562

 
1,912

 
(1,620
)
 
16,854

Depreciation and amortization
3,576

 
6,292

 

 
9,868

Total operating expense
131,883

 
17,326

 
(26,302
)
 
122,907

Operating income (loss)
(409
)
 
8,982

 

 
8,573

Non-operating income (expense)
 
 
 
 
 
 
 
Interest expense
(6,113
)
 
(1,869
)
 

 
(7,982
)
Interest income
121

 
1

 

 
122

Other income (expense)
(4,474
)
 
(53
)
 

 
(4,527
)
Equity in earnings of subsidiaries
7,046

 

 
(7,046
)
 

Total non-operating income (expense)
(3,420
)
 
(1,921
)
 
(7,046
)
 
(12,387
)
Income (expense) before income taxes
(3,829
)
 
7,061

 
(7,046
)
 
(3,814
)
Income tax benefit (expense), net
4

 
(15
)
 

 
(11
)
Net income (loss)
(3,825
)
 
7,046

 
(7,046
)
 
(3,825
)
Comprehensive income (loss)
$
(3,825
)
 
$
7,046

 
$
(7,046
)
 
$
(3,825
)
Condensed Consolidating Statements of Income (Loss) and Comprehensive Income (Loss)

Three Months Ended June 30, 2011
(in thousands)
Parent 'Issuer'
 
Subsidiaries Guarantors
 
Eliminations
 
Consolidated
Revenue

 

 

 

Passenger ticket
$
110,185

 
$

 
$

 
$
110,185

Onboard and other
12,661

 
3

 

 
12,664

Related Party Revenue

 
24,888

 
(24,888
)
 

Total revenue
122,846

 
24,891

 
(24,888
)
 
122,849

Cruise operating expense

 

 

 

Commissions, transportation and other
38,720

 
1,178

 
(1,180
)
 
38,718

Onboard and other
3,608

 

 

 
3,608

Payroll, related and food
14,789

 
2,910

 

 
17,699

Fuel
10,263

 

 

 
10,263

Other ship operating
7,433

 
2,387

 

 
9,820

Other
26,495

 
1,146

 
(22,358
)
 
5,283

Total cruise operating expense
101,308

 
7,621

 
(23,538
)
 
85,391

Selling and administrative
16,493

 
1,831

 
(1,350
)
 
16,974

Depreciation and amortization
5,551

 
3,673

 

 
9,224

Total operating expense
123,352

 
13,125

 
(24,888
)
 
111,589

Operating income (loss)
(506
)
 
11,766

 

 
11,260

Non-operating income (expense)

 

 

 

Interest expense
(3,777
)
 
(3,617
)
 

 
(7,394
)
Interest income
49

 
1

 

 
50

Other income (expense)
(7,026
)
 

 

 
(7,026
)
Equity in earnings of subsidiaries
8,254

 

 
(8,254
)
 

Total non-operating income (expense)
(2,500
)
 
(3,616
)
 
(8,254
)
 
(14,370
)
Income (loss) before income taxes
(3,006
)
 
8,150

 
(8,254
)
 
(3,110
)
Income tax benefit (expense), net
4

 
104

 

 
108

Net income (loss)
(3,002
)
 
8,254

 
(8,254
)
 
(3,002
)
Comprehensive income (loss)
$
(3,002
)
 
$
8,254

 
$
(8,254
)
 
$
(3,002
)

Condensed Consolidating Statements of Income (Loss) and Comprehensive Income (Loss)
 
Six Months Ended June 30, 2012
(in thousands)
Parent 'Issuer'
 
Subsidiaries Guarantors
 
Eliminations
 
Consolidated
Revenue
 
 
 
 
 
 
 
Passenger ticket
$
228,120

 
$

 
$

 
$
228,120

Onboard and other
23,214

 
6

 

 
23,220

Related Party Revenue

 
53,103

 
(53,103
)
 

Total revenue
251,334

 
53,109

 
(53,103