UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2013~~2014

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 333-178244

Seven Seas Cruises S. DE R.L.

(Exact Name of Registrant as Specified in Its Charter)



Republic of Panama				75-3262685
(State or Other Jurisdiction of Incorporation)				(I.R.S. Employer Identification No.)

8300 NW 33^rd Street, Suite 100

Miami, FL 33122

(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (305) 514-2300

~~Not~~Indicate ~~Applicable~~by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x* No ¨

Indicate by check mark whether the registrant (~~Former~~1) ~~name,~~has ~~former~~filed ~~address~~all ~~and~~reports ~~former~~required ~~fiscal~~to ~~year,~~be iffiled ~~changed~~by ~~since~~Section ~~last~~13 ~~report~~or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x*

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

* The registrant ~~became~~has not been subject to the filing requirements of Section 15(d) of the Securities Exchange Act of 1934 onsince ~~May~~December 1031, 2012. The registrant is a voluntary filer and accordingly has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the period it was required to file such reports and during the ~~preceding~~past 1290 ~~months~~days, notwithstanding that the registrant is no longer required to file such reports.

SEVEN SEAS CRUISES S. DE R.L.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2014

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		Page
		Page
PART I. Financial Information
Item 1.	Financial Statements	2
Item 2.	Management’'s Discussion and Analysis of Financial Condition and Results of Operations	2422
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4134
Item 4.	Controls and Procedures	4235
PART II. OTHER INFORMATION
PART II.
Item 6.	Exhibits	43
Item 1A.	Risk Factors	36
Signatures		43
Item 6.	Exhibits	36
Signatures		38

~~Table of Contents~~1

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SEVEN SEAS CRUISES S. DE R.L.

CONSOLIDATED BALANCE SHEETS

(~~unaudited, in thousands~~UNAUDITED)

	September 30, 2013			December 31, 2012
Assets
Current assets
Cash and cash equivalents	$	145,778		$	99,857
Restricted cash	367			—
Trade and other receivables, net	7,001			7,279
Related party receivables	—			1,798
Inventories	6,289			6,572
Prepaid expenses	25,385			17,828
Other current assets	2,930			2,692
Total current assets	187,750			136,026
Property and equipment, net	646,747			637,324
Goodwill	404,858			404,858
Intangible assets, net	82,042			83,556
Other long-term assets	31,721			32,950
Total assets	$	1,353,118		$	1,294,714
Liabilities and Members' Equity
Current liabilities
Trade and other payables	$	2,918		$	4,483
Related party payables	2,559			131
Accrued expenses	46,509			43,733
Passenger deposits	187,885			169,463
Derivative liabilities	—			278
Current portion of long-term debt	2,237			—
Total current liabilities	242,108			218,088
Long-term debt	517,196			518,358
Other long-term liabilities	11,040			9,635
Total liabilities	770,344			746,081
Commitments and contingencies
Members' equity
Contributed capital	564,934			564,372
Accumulated earnings (deficit)	18,559			(15,739		)
Accumulated other comprehensive loss	(719		)	—
Total members' equity	582,774			548,633
Total liabilities and members' equity	$	1,353,118		$	1,294,714

(in thousands)



	June 30,		December 31,
	2014		2013

Assets
Current assets
Cash and cash equivalents	$	143,757	$	138,526
Restricted cash	59		367
Trade and other receivables, net	8,937		7,706
Inventories	8,260		7,352
Prepaid expenses	21,883		21,266
Other current assets	2,765		3,007
Total current assets	185,661		178,224
Property and equipment, net	656,388		651,286
Goodwill	404,858		404,858
Intangible assets, net	80,874		81,324
Other long-term assets	24,397		36,776
Total assets	$	1,352,178	$	1,352,468

Liabilities and Members' Equity
Current liabilities
Trade and other payables	$	3,341	$	5,798
Related party payables	819		1,560
Accrued expenses	42,677		48,154
Passenger deposits	234,699		194,173
Current portion of long-term debt	2,218		2,679
Total current liabilities	283,754		252,364
Long-term debt	466,385		516,833
Other long-term liabilities	15,512		8,896
Total liabilities	765,651		778,093
Commitments and contingencies
Members' equity
Contributed capital	564,959		564,830
Retained earnings	20,345		6,843
Accumulated other comprehensive income	1,223		2,702
Total members' equity	586,527		574,375
Total liabilities and members' equity	$	1,352,178	$	1,352,468

The accompanying notes are an integral part of these consolidated financial statements.

SEVEN SEAS CRUISES S. DE R.L.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(~~unaudited, in thousands~~UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue
Passenger ticket	$	149,771		$	143,152		$	392,983		$	372,806
Onboard and other	16,185			15,861			40,026			39,082
Total revenue	165,956			159,013			433,009			411,888
Cruise operating expense
Commissions, transportation and other	50,355			53,832			139,564			141,100
Onboard and other	4,651			4,852			11,126			10,260
Payroll, related and food	20,502			20,316			59,922			58,337
Fuel	9,855			9,203			31,384			31,751
Other ship operating	11,212			12,249			32,927			32,620
Other	1,262			912			3,783			8,037
Total cruise operating expense	97,837			101,364			278,706			282,105
Other operating expense
Selling and administrative	18,216			17,257			59,765			55,258
Depreciation and amortization	9,064			10,568			27,432			30,111
Total operating expense	125,117			129,189			365,903			367,474
Operating income	40,839			29,824			67,106			44,414
Non-operating income (expense)
Interest income	67			135			206			360
Interest expense	(9,375		)	(9,290		)	(29,066		)	(25,356		)
Other income (expense)	1,272			174			(3,924		)	(1,840		)
Total non-operating expense	(8,036		)	(8,981		)	(32,784		)	(26,836		)
Income before income taxes	32,803			20,843			34,322			17,578
Income tax benefit (expense)	85			136			(24		)	(65		)
Net income	32,888			20,979			34,298			17,513
Other comprehensive income:
Loss on change in derivative fair value	(719		)	—			(719		)	—
Total comprehensive income	$	32,169		$	20,979		$	33,579		$	17,513

(in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013

Revenue
Passenger ticket	$	128,784		$	129,774		$	247,681		$	243,212
Onboard and other	14,160			12,962			27,532			23,841
Total revenue	142,944			142,736			275,213			267,053

Cruise operating expense
Commissions, transportation and other	44,482			49,293			84,741			89,209
Onboard and other	4,189			3,795			8,466			6,475
Payroll, related and food	19,871			20,084			39,417			39,420
Fuel	10,093			10,052			20,754			21,529
Other ship operating	10,811			12,075			20,181			21,714
Other	4,862			1,272			8,414			2,521
Total cruise operating expense	94,308			96,571			181,973			180,868
Other operating expense
Selling and administrative	19,750			19,269			42,114			41,549
Depreciation and amortization	9,793			9,115			19,080			18,368
Total operating expense	123,851			124,955			243,167			240,785
Operating income	19,093			17,781			32,046			26,268

Non-operating income (expense)
Interest income	47			64			128			139
Interest expense	(8,168		)	(9,643		)	(16,742		)	(19,691		)
Other income (expense)	748			(1,711		)	(1,741		)	(5,195		)
Total non-operating expense	(7,373		)	(11,290		)	(18,355		)	(24,747		)
Income before income taxes	11,720			6,491			13,691			1,521
Income tax expense	(15		)	(30		)	(189		)	(109		)
Net income	11,705			6,461			13,502			1,412

Other comprehensive income:
Change in fair value of derivatives	(1,603		)	—			(1,374		)	—
Cash flow hedge reclassified into earnings	—			—			(105		)	—
Total comprehensive income	$	10,102		$	6,461		$	12,023		$	1,412

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

SEVEN SEAS CRUISES S. DE R.L.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~unaudited, in thousands~~UNAUDITED)

	Nine months ended
	September 30,
	2013			2012
Cash flows from operating activities
Net income	$	34,298		$	17,513
Adjustments:
Depreciation and amortization	27,432			30,111
Amortization of deferred financing costs	1,529			2,232
Accretion of debt discount	520			346
Stock-based compensation	572			676
Unrealized gain (loss) on derivative contracts	455			(1,574		)
Loss on disposals of property and equipment	—			303
Write-off deferred financing costs and debt discount	2,500			4,487
Prepayment penalty, excluded from loss on early extinguishment of debt	(2,093		)	—
Other, net	(133		)	(185		)
Changes in operating assets and liabilities:
Trade and other accounts receivable	2,076			1,271
Prepaid expenses and other current assets	(7,051		)	83
Inventories	283			(1,876		)
Accounts payable and accrued expenses	3,463			6,450
Passenger deposits	18,144			9,838
Net cash provided by operating activities	81,995			69,675
Cash flows from investing activities
Purchases of property and equipment	(32,262		)	(19,547		)
Change in restricted cash	7,585			509
Acquisition of non-compete	(165		)	—
Net cash used in investing activities	(24,842		)	(19,038		)
Cash flows from financing activities
Repayment of long-term debt	—			(293,500		)
Proceeds from refinancing of long-term debt	—			297,000
Debt related costs	(9,239		)	(6,860		)
Payments on other financing obligations	(2,000		)	(2,000		)
Costs associated with the early extinguishment of debt	—			(76		)
Net cash used in financing activities	(11,239		)	(5,360		)
Effect of exchange rate changes on cash and cash equivalents	7			76
Net increase in cash and cash equivalents	45,921			45,353
Cash and cash equivalents
Beginning of period	99,857			68,620
End of period	$	145,778		$	113,973

(in thousands)



	Six Months Ended June 30,
	2014			2013
Cash flows from operating activities
Net income	$	13,502		$	1,412
Adjustments:
Depreciation and amortization	19,080			18,368
Amortization of deferred financing costs	1,101			1,016
Accretion of debt discount	293			360
Stock-based compensation	581			429
Change in fair value of derivative contracts	135			1,203
Loss on early extinguishment of debt, excluding prepayment penalty	2,008			2,500
Prepayment penalty excluded from loss on early extinguishment of debt	—			(2,093		)
Other, net	317			(1		)
Changes in operating assets and liabilities:
Trade and other accounts receivable	(1,230		)	(2,472		)
Prepaid expenses and other current assets	(1,705		)	(1,366		)
Inventories	(908		)	(485		)
Accounts payable and accrued expenses	(7,100		)	2,282
Passenger deposits	47,509			40,259
Net cash provided by operating activities	73,583			61,412
Cash flows from investing activities
Purchases of property and equipment	(24,045		)	(4,955		)
Change in restricted cash	12,326			7,970
Other	(75		)	(127		)
Net cash (used in) provided by investing activities	(11,794		)	2,888
Cash flows from financing activities
Repayment of long-term debt	(51,480		)	—
Debt related costs	(4,621		)	(959		)
Payments on other financing obligations	—			(2,000		)
PCI offering costs	(321		)	—
Net cash used in financing activities	(56,422		)	(2,959		)
Effect of exchange rate changes on cash and cash equivalents	(136		)	(191		)
Net increase in cash and cash equivalents	5,231			61,150
Cash and cash equivalents
Beginning of period	138,526			99,857
End of period	$	143,757		$	161,007

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(~~unaudited~~UNAUDITED)

Note 1.General

~~Basis~~Description of ~~Presentation~~Business

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~~, and is also the parent of Oceania Cruises, Inc~~. ~~(“OCI”).~~ 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, Inc. (the “Regent Seven Seas Transaction”).

The accompanying unaudited 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 of America ("GAAP") and rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~U.S. generally accepted accounting principles (“~~GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures herein are adequate to ensure the information presented is not misleading. These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2012~~2013.

Due to the seasonality of our business, our results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for our fiscal year ending December 31, ~~2013 reported in our consolidated financial statements or notes thereto~~2014. There have been no significant changes in our financial position, or results of operations ~~and~~or cash flows as a result of the adoption of new accounting pronouncements or to our significant accounting policies that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2012~~2013.

The accompanying consolidated balance sheet at ~~September~~June 30, ~~2013~~2014 and the consolidated statements of income and comprehensive income for the three and ~~nine~~six months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013 and the consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013 are unaudited, and, in the opinion of management, contain all adjustments necessary for fair presentation, consisting of only normal recurring adjustments~~, necessary for fair presentation~~.

Significant Accounting Policies

~~Property~~Restricted ~~and~~Cash ~~Equipment~~

As of ~~January 1~~June 30, ~~2013,~~2014 weand 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 December 31, 2013~~. This new information~~, inrestricted ~~conjunction~~cash ~~with~~was ~~other~~$0.3 ~~comparable~~million ~~sale~~and ~~data~~$12.7 ~~points~~million, ~~was used in our analysis~~respectively, ~~which includes our consideration~~ of ~~anticipated~~which ~~technological~~$0.3 ~~changes,~~million ~~long-term cruise~~ and ~~vacation market conditions and replacement cost of similarly built vessels~~$12.3 Asmillion awere ~~result,~~classified ~~we increased each ship's projected residual value from 15% to 30%. The change~~ in ~~estimate~~other ~~has~~long-term ~~been~~assets ~~applied prospectively as of January 1, 2013. The effect of the change~~ on ~~both operating income and net income for~~ the ~~three~~consolidated ~~and~~balance ~~nine~~sheets ~~month~~at ~~period ended September~~June 30, ~~2013~~2014 ~~is approximately $1.3 million~~ and ~~$4.0~~ ~~million~~December 31, ~~respectively~~2013, ~~of reduced depreciation expense~~respectively. ~~The~~During ~~estimated~~March ~~impact~~2014, ~~of this change for full year 2013 is a reduction of depreciation expense of approximately~~ $512.30 million. Wewas ~~periodically~~released ~~review~~as ~~and~~we ~~evaluate~~were ~~these~~no ~~estimate~~longer ~~and~~required ~~judgments~~to ~~based~~cash oncollateralize ~~historical~~a ~~experiences~~letter ~~and~~of ~~new~~credit ~~factors~~for ~~and~~the ~~circumstances.~~benefit Asof ~~part~~one ~~our~~of ~~ongoing reviews,~~ our ~~estimates~~credit ~~may~~card ~~change in the future~~processors. ~~If such a change is necessary, depreciation expense could be materially higher or lower.~~

Table of Contents

Other

During 2012, we increased our passenger ticket revenue and commissions, transportation and other expenses by $1.6 million during the nine months ended September 30, 2012. There was no impact to the consolidated statements of income and comprehensive income for the three months ended September 30, 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 qualitatively and quantitatively to previously issued unaudited quarterly financial statements and had no impact on net income or cash flows.

New Accounting Pronouncements

AsIn ofApril ~~January 1~~2014, ~~2013,~~the ~~we adopted~~ Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2011~~No. 2014-1108, “Reporting Discontinued Operations and Disclosures ~~about~~of ~~Offsetting~~Disposals ~~Assets~~of ~~and~~Components ~~Liabilities~~of an Entity.” ItASU ~~requires~~No. an2014-08 ~~entity~~amends tothe ~~disclose~~definition ~~information~~of ~~about~~discontinued ~~offsetting~~operations ~~and~~by ~~related~~limiting ~~arrangements~~discontinued operations reporting to ~~enable~~disposals ~~users~~of components of ~~its~~an ~~financial~~entity ~~statements~~that torepresent ~~understand~~strategic ~~the~~shifts ~~effect~~that ofhave ~~those~~(or ~~arrangements~~will have) a major effect on ~~its~~an entity's operations and financial ~~position~~results. InThe ~~2013,~~amendments ~~this~~require ~~pronouncement~~expanded ~~was~~disclosures ~~enhanced~~for bydiscontinued ~~ASU~~operations ~~2013-1.~~that ~~This~~would ~~update~~provide ~~clarifies~~users ~~that~~of ~~ordinary~~financial ~~receivables~~statements ~~are~~with ~~not~~more ~~within~~information about the ~~scope~~assets, liabilities, revenues, and expenses of ~~ASU~~discontinued ~~2011-11~~operations and itdisclosure ~~applies~~of ~~only~~the topretax ~~derivatives,~~profit ~~repurchase~~or ~~agreements,~~loss ~~reverse~~of ~~purchase~~individually ~~agreements~~significant ~~and~~components ~~other~~of ~~securities~~an ~~lending~~entity ~~transactions. The~~that ~~adoption~~do ~~did~~ not ~~materially~~qualify ~~impact~~for ~~our~~discontinued ~~consolidated~~operations ~~financial~~reporting. ~~statements~~ASU No. 2014-08 is to be applied prospectively to all disposals (or classifications as held for sale) of components of an

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 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 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. Refer to Footnote 6: Other Comprehensive Income for details. 5

Inentity ~~July~~and ~~2013,~~all ~~the~~businesses ~~Financial~~or ~~Accounting~~nonprofit ~~Standards~~activities ~~Board~~that, ~~issued~~on ~~ASU 2013-10~~acquisition, ~~Inclusion~~are ofclassified ~~the Federal Funds Effective Swap Rate~~ as aheld ~~benchmark interest rate~~ for ~~hedge~~sale ~~accounting~~that ~~purposes.~~occur ~~This~~within ~~guidance~~fiscal isyears, ~~effective~~and ~~prospectively~~interim ~~for~~periods ~~qualifying~~within ~~new~~those oryears, ~~redesignated~~beginning ~~hedging relationships entered into on or~~ after ~~July 17~~December 15, ~~2013~~2014. WeThe ~~adopted~~adoption ~~this guidance as~~ of ~~July 17,~~ASU ~~2013,~~No. ~~and~~2014-08 itis ~~did~~ not expected to have a material impact on our ~~consolidated~~results of operations, cash flows or financial ~~statements~~position.

~~There~~In ~~are~~May no2014, ~~other~~the ~~recently~~FASB issued ~~accounting~~ASU ~~pronouncements~~No. ~~not~~2014-09, ~~yet~~“Revenue ~~adopted~~from orContracts ~~recently~~with ~~issued~~Customers.” ~~pronouncements~~ASU ~~that~~No. we2014-09 ~~expect~~requires entities to ~~have~~recognize revenue through the application of a ~~material~~five-step ~~effect~~model, onwhich includes identification of the ~~presentation~~contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligation and recognition of revenue as the entity satisfies the performance obligations. Entities have the option of using either a full retrospective or ~~disclosure~~a modified approach to adopt the guidance. ASU No. 2014-09 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the guidance to determine the potential impact of ~~our~~adopting ~~future~~ASU ~~consolidated~~No. ~~operating~~2014-09 on its results of operations, cash flows orand financial ~~condition~~position.

In June 2014, the FASB issued ASU No. 2014-12 "Compensation - Stock Compensation (Topic 718) - Accounting for Share Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU No. 2014-12 is effective for interim and annual periods beginning after December 15, 2015. The amendments can be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented and to all new or modified awards thereafter. Early adoption is permitted. The Company has determined that ASU No. 2014-12 will not have an impact on it results of operations, cash flows or financial position.

There are no other recently issued accounting pronouncements not yet adopted that we expect to have a material effect on the presentation or disclosure of our future consolidated operating results, cash flows or financial position.

Note 2. Property and Equipment, net

~~During~~Property ~~the nine months ended September 30, 2013, property~~ and equipment, ~~net~~consists ~~decreased~~of ~~$9.4 million. Depreciation expense was $8.2 million and $9.8 million for~~ the three months ended September 30, 2013 and 2012, respectively, and $25.0 million and $27.9 million for the nine months ended September 30, 2013 and 2012, respectively. Capital expenditures totaled $27.3 million and $5.1 million for the three months ended September 30, 2013 and 2012, respectively and $32.1 million and $19.7 million for the nine months ended September 30, 2013 and 2012, respectively.following:



	June 30,			December 31,
(in thousands)	2014			2013
Ships	$	841,888		$	823,195
Furniture, equipment, and other	12,485			11,645
Less: Accumulated depreciation and amortization	(197,985		)	(183,554		)
Property and equipment, net	$	656,388		$	651,286

During the six months ended June 30, 2014, property and equipment, net increased $5.1 million. Capital expenditures, net of retirements totaled $19.5 million for the six months ended June 30, 2014. The capitalized additions included ship improvements and refurbishments completed during the Seven Seas Mariner drydock. Depreciation expense on assets in service was $9.7 million and $8.2 million for the three months ended June 30, 2014 and 2013, respectively, and $18.6 million and $16.6 million for the six months ended June 30, 2014 and 2013, respectively.

~~Table~~Note ~~of Contents~~3. Debt

	September 30,			December 31,
(in thousands)	2013			2012
$300 million term loan, 4.75% and 6.25% as of September 30, 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	(1,817		)	(2,892		)
Less: Current portion of long-term debt and discount	(2,237		)	—
Long-term portion	$	517,196		$	518,358

Debt consists of the following:

Interest expense on third-party debt was $8.8 million and $8.3 million for the three months ended September 30, 2013 and 2012, respectively, and was $26.6 million and $22.1 million for the nine months ended September 30, 2013 and 2012, respectively.



	June 30,			December 31,
(in thousands)	2014			2013
$300 million term loan, 3.75% and 4.75% for 2014 and 2013, respectively, due through 2018	$	244,770		$	296,250
$225 million senior secured notes, 9.125%, due 2019	225,000			225,000
Total debt	469,770			521,250
Less: Original issue discount	(1,167		)	(1,738		)
Less: Current portion of long-term debt and discount	(2,218		)	(2,679		)
Long-term portion	$	466,385		$	516,833

~~Term~~Interest ~~Loan~~expense on third-party debt was $7.2 million (net of capitalized interest of $0.4 million) and $8.7 million for the three months ended June 30, 2014 and 2013, respectively, and $14.8 million (net of capitalized interest of $0.7 million) and $17.8 million for the six months ended June 30, 2014 and 2013, respectively. There was no capitalized interest in 2013.

OnTerm 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 in connection with the amendment. 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. Loans

WeOn ~~applied~~February 7, ~~ASC~~2014, ~~470-50~~we ~~Debt~~amended -our ~~Modifications~~existing ~~and~~$340.0 ~~Extinguishments~~million tocredit ~~this~~facility, ~~transaction~~consisting of a $300.0 ~~After~~million ~~evaluating~~term ~~the~~loan ~~criteria~~and asa ~~applicable~~$40.0 tomillion ~~syndicated~~revolving ~~loans,~~credit ~~the~~facility. ~~repricing~~In ~~resulted~~conjunction inwith anthis ~~extinguishment~~amendment, of$50.3 ~~debt~~million ~~for~~of ~~certain~~the ~~creditors~~term ~~whose~~loan ~~balances~~was ~~were~~prepaid ~~entirely~~such ~~repaid.~~that ~~This~~the ~~repricing~~outstanding ~~resulted~~balance inon athe ~~debt~~term ~~modification~~loan ~~for~~of ~~certain~~$296.3 ~~creditors~~million ~~whose~~was ~~terms~~reduced ~~were~~to ~~not~~$246.0 ~~substantially~~million. ~~different~~The ~~before~~interest ~~and~~rate ~~after~~margin on the ~~amendment~~amended term loan is 2. ~~The~~75% ~~new~~compared ~~fees~~to ~~paid~~3.50% ~~and~~on the previously existing ~~deferred~~term ~~financing~~loan ~~costs~~and ~~were~~the ~~proportionally~~LIBOR ~~allocated~~floor ~~between~~was ~~modification~~reduced ~~and~~from ~~extinguishment~~1. Of25% ~~the~~to $41.500%. ~~million~~The inamended ~~fees,~~term loan requires quarterly payments of principal equal to $30.26 million ofbeginning March 2014, with the ~~amendment~~remaining ~~fees~~unpaid ~~were~~amount ~~capitalized~~due and ~~are~~payable ~~being~~at ~~amortized~~maturity. ~~over~~Borrowings under the ~~remaining~~amended term ofloan ~~the~~are ~~debt. New~~pre-payable ~~fees~~in ~~and~~whole ~~previously~~or ~~existing~~in ~~deferred~~part ~~financing~~at ~~costs~~any ~~allocated~~time towithout ~~the~~penalty, ~~extinguishment~~but ~~were~~are ~~included~~subject to a prepayment premium in the ~~calculation~~event of ~~gain~~a orrefinancing ~~loss~~of onthe ~~early~~term ~~extinguishment~~loan within twelve months of ~~debt,~~the ~~which~~amendment ~~resulted~~date. inThere awere ~~loss~~no changes to the terms of the $340.70 million ~~and~~revolving ~~was~~credit ~~recorded~~facility, ~~within~~the ~~other~~financial ~~income~~covenants ~~(expense)~~or inthe maturity date of the ~~consolidated~~credit ~~statement~~facility. We paid $1.5 million of ~~income~~accrued ~~and~~interest, ~~comprehensive~~$1.2 ~~income~~million ~~for~~in ~~the~~arranger ~~nine~~fees ~~months~~to ~~ended~~participating ~~September~~creditors ~~30,~~and ~~2013~~$0.2 million in legal fees, in conjunction with the amendment.

~~Our~~We ~~credit~~applied ~~agreement~~ASC ~~contains~~470-50 aDebt ~~number~~- ofModifications ~~covenants~~and ~~that~~Extinguishments ~~impose~~to ~~operating~~this ~~and~~transaction. ~~financial~~After ~~restrictions~~evaluating the criteria as applicable to syndicated loans, ~~including~~the ~~restrictions~~repricing onresulted usin an extinguishment of debt for certain creditors whose balances were entirely repaid and ~~our~~in ~~subsidiaries'~~a ~~ability~~debt ~~to,~~modification ~~among~~for ~~other~~certain ~~things,~~creditors ~~incur~~whose ~~additional~~terms ~~indebtedness,~~were ~~pay~~not ~~dividends~~substantially ondifferent orbefore ~~make~~and ~~distributions~~after ~~with~~the ~~respect~~amendment. toThe ~~our~~new ~~capital~~fees ~~stock,~~paid ~~restrict~~and ~~certain~~the ~~transactions~~previously ~~with~~existing ~~affiliates,~~deferred financing costs were proportionally allocated between modification and ~~sell~~extinguishment. ~~certain~~Of ~~key~~the ~~assets,~~$1.4 ~~primarily~~million ~~our~~in ~~ships~~new fees, $1.2 ~~All~~million of ~~our~~the ~~debt~~amendment isfees ~~collateralized~~were bycapitalized ~~our~~and ~~vessels. We~~are ~~believe~~being ~~that~~amortized ~~based~~over onthe ~~our~~remaining ~~cash~~term onof ~~hand~~the debt. Previously existing deferred financing costs and ~~expected~~debt ~~future~~discount ~~operating~~of ~~cash~~$1.6 ~~inflows~~million and $0.4 million, werespectively, ~~will~~allocated ~~have~~to ~~sufficient~~the ~~cash~~extinguishment ~~flow~~were toincluded ~~fund~~in ~~operations,~~the ~~meet~~calculation ~~our~~of ~~debt~~loss ~~service~~on ~~requirements~~early extinguishment of debt, which resulted in a loss of $2.0 million and ~~maintain~~was ~~compliance~~recorded ~~with~~within other income (expense) in the ~~financial~~consolidated ~~covenants~~statement ~~under~~of ~~our~~income ~~credit~~and ~~agreements~~comprehensive ~~over~~income for the ~~next~~six ~~twelve-month~~months ~~period~~ended June 30, 2014.

As of June 30, 2014 and December 31, 2013, the total undrawn amount available under the revolving credit facility was $40.0 million.

~~Table~~Debt ~~of Contents~~Covenants

OnOur ~~July~~credit 5,agreements ~~2013~~and senior secured notes contain a number of covenants that impose operating and financial restrictions, including requirements that we ~~entered~~maintain ~~into~~a minimum liquidity level, a ~~definitive~~maximum ~~contract~~loan-to-value ~~with~~ratio, ~~Italy’s~~a ~~Fincantieri~~minimum ~~shipyard~~interest coverage ratio (applicable only to ~~build~~our arevolving ~~luxury~~credit ~~cruise~~facility, ~~ship~~if drawn) and restrictions on our and our subsidiaries’ ability to, beamong ~~named~~other ~~the~~things, ~~Seven~~incur ~~Seas~~additional ~~Explorer.~~indebtedness, ~~Under~~incur ~~the~~liens ~~terms~~on ofassets, ~~the~~make ~~contract~~certain investments, weissue ~~will~~disqualified ~~pay~~stock ~~approximately~~and ~~$450.0~~preferred ~~million~~stock, tomake ~~Fincantieri~~restricted ~~for~~payments, ~~the~~pay ~~new~~dividends ~~vessel.~~or ~~During~~make ~~July~~distributions, ~~2013~~enter into certain transactions with affiliates, weand ~~made~~consolidate aor ~~payment~~sell ofcertain ~~approximately~~key ~~$22~~assets.0 ~~million~~As toof ~~Fincantieri~~June 30, ~~for~~2014, ~~the~~we ~~initial~~are ~~installment~~in ~~payment~~compliance ~~for~~with ~~Seven~~all ~~Seas~~financial ~~Explorer~~covenants.

OnThe ~~July~~following ~~31,~~schedule ~~2013,~~represents ~~we entered into a loan agreement providing for borrowings of up to $440.0 million with a syndicate of financial institutions to finance 80% of~~ the ~~contract~~maturities ~~cost~~ of Seven Seas Explorer plus the export credit agency premium. Borrowings under this loan agreement will bear interest, at our election, at either (i) a fixed rate of 3.43% per year, or (ii) LIBOR plus 2.8% per year. Our commitment fee is 1.1% per year on the undrawn maximum loan amount. Guarantees under this loan agreement are provided by us and PCH. The twelve year fully amortizing loan requires semilong-~~annual~~term ~~principal and interest payments commencing six months following the draw-down date.~~ debt:

The following schedule represents the maturities of debt (in thousands):



(in thousands)
For the twelve months ended June 30,
2015	$	2,460
2016	2,460
2017	2,460
2018	2,460
2019	459,930
Thereafter	—
Total	$	469,770

For the twelve months ending September 30,
2014	$	2,250
2015	3,000
2016	3,000
2017	3,000
Thereafter	510,000
	$	521,250

Note 4. Derivative Instruments, Hedging Activities and Fair Value Measurements

We are exposed to market risks attributable to changes in ~~fuel~~interest ~~prices~~rates, foreign currency exchange rates and ~~interest~~fuel ~~rates~~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~~Foreign ~~Price~~Currency Exchange Risk

Our exposure to ~~market~~foreign ~~risk~~currency ~~for~~exchange ~~changes~~rate inrisks ~~fuel prices~~ relates ~~primarily~~ to ~~the~~our ~~consumption~~Euro ofdenominated ~~fuel~~installment payments on our ~~vessels.~~newbuild Weship ~~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~~contract, ~~the~~vessel ~~changes~~drydock inand ~~fair value of these fuel derivatives are recorded in~~ other ~~income~~operational ~~(expense) in the accompanying consolidated statements of income~~expenses. As ofWe ~~September 30, 2013, we~~ have ~~hedged~~entered ~~the~~into ~~variability~~foreign incurrency ~~future~~swaps ~~cash flows for forecast fuel consumption occurring through December 2015. As of September 30, 2013~~ and ~~December 31,~~collars ~~2012,~~to welimit ~~have~~the ~~entered~~exposure ~~into~~to ~~the~~movements ~~following~~in ~~fuel~~foreign ~~swap~~currency ~~agreements:~~exchange rates.

During August 2013, we entered into a foreign currency collar option with an aggregate notional amount €274.4 million ($375.7 million at June 30, 2014) to limit our exposure to foreign currency exchange rates for Euro denominated payments related to the ship construction contract for Seven Seas Explorer. The notional amount of the collar represents 80% of the construction contract of the vessel due at delivery. This foreign currency collar option was designated as a cash flow hedge at the inception of the instrument and will mature June 2016. The change in fair value of the effective portion of the derivative was recorded as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets. Ineffective portions of the changes in fair value of the instrument will be recognized in other income (expense) in the statement of income and other comprehensive income. We recorded $0.0 million and $0.1 million of ineffectiveness for the three months and six months ended June 30, 2014, respectively. There was no ineffectiveness recorded in 2013.

~~Table~~Fuel ofPrice ~~Contents~~Risk

	Fuel Swap Agreements
	As of September 30, 2013		As of December 31, 2012
	(in barrels)
2013	66,000		207,975
2014	156,450		108,750
2015	37,500		—
	Fuel Swap Agreements
	As of September 30, 2013		As of December 31, 2012
	(% hedged - estimated consumption)
2013	75	%	56	%
2014	42	%	29	%
2015	10	%	—	%

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 June 30, 2014, we have hedged the variability in future cash flows for estimated fuel consumption requirements occurring through 2015.

We have certain fuel derivative contracts that are subject to margin requirements. For these specific fuel derivative contracts, we may be required to post collateral if the mark-to-market exposure assessed at our parent company level exceeds $3.0 million on any business day. 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 September 30, 2013, the fair market value of our derivative liability related to this counterparty was $0.0 million. As of ~~September~~June 30, ~~2013~~2014 and December 31, ~~2012~~2013, we ~~were~~have ~~not~~entered ~~required~~into tothe ~~post~~following ~~any collateral for our~~ fuel ~~derivative~~swap ~~instruments, as the exposure at our parent company level did not exceed $3.0 million.~~agreements:

Foreign Currency Exchange Rate Risk



	Fuel Swap Agreements
	June 30, 2014		December 31, 2013
	(in barrels)
2014	129,000		188,850
2015	97,800		37,500

	Fuel Swap Agreements
	June 30, 2014		December 31, 2013
	(% hedged - estimated consumption)
2014	69	%	51	%
2015	26	%	10	%

~~Our~~We ~~exposure~~have tocertain ~~foreign~~fuel ~~currency~~derivative ~~exchange~~contracts ~~rate~~that ~~risk~~are ~~relates~~subject to ~~our~~margin ~~euro-denominated~~requirements. ~~ship~~For ~~construction~~these ~~contract,~~specific ~~ship~~fuel ~~drydocks~~derivative ~~and~~contracts, ~~other~~we ~~operational~~may ~~expenses. We~~be ~~enter~~required ~~into~~to ~~foreign~~post ~~currency~~collateral ~~forward~~if ~~contracts~~the ~~and collar options~~ mark-to-market ~~limit the~~ exposure toassessed ~~movements~~at inour ~~the~~parent ~~foreign~~company ~~currency~~level ~~exchange~~exceeds ~~rates~~$3.0 ~~related~~million, toon ~~these~~any ~~risks~~business day. The ~~majority~~amount of ~~our~~collateral ~~operational~~required ~~foreign~~to ~~currency~~be ~~forward~~posted ~~contracts~~is doan ~~not~~amount ~~qualify~~equal ~~for~~to ~~hedge accounting; therefore,~~ the ~~changes~~difference inbetween the ~~fair~~mark-to-market ~~value~~exposure ofand ~~these~~$3.0 ~~foreign~~million. ~~currency~~At ~~derivatives~~June 30, ~~are~~2014, ~~recorded in other income (expense) in~~ the ~~accompanying~~fair ~~consolidated~~market ~~statements~~value of ~~income~~our ~~and~~derivative ~~comprehensive~~liability ~~income. As~~related ofto ~~September~~this ~~30,~~counterparty ~~2013~~was zero and ~~December 31, 2012,~~ we ~~had~~were nonot ~~outstanding~~required ~~operational~~to ~~foreign~~post ~~currency~~any ~~forward~~collateral ~~contracts~~for ~~related~~our tofuel ~~drydock~~derivative ~~or other operational expenses~~instruments.

~~During~~At ~~the third quarter of 2013~~June 30, we2014 ~~entered~~and ~~into a foreign currency collar option with an aggregate notional amount of €274.4 million ($365.8 million as of September 30~~December 31, 2013), ~~to hedge a portion of our foreign currency exposure related to~~ the ~~construction~~fair ~~contract~~values ~~for Seven Seas Explorer. This foreign currency collar option was designated as a cash flow hedge at the inception of the instrument~~ and ~~will~~line ~~mature~~item incaptions ~~June 2016. The change in fair value~~ of ~~the effective portion of the~~ derivative ~~was~~instruments ~~recorded~~designated as ahedging ~~component~~instruments ofunder ~~accumulated~~FASB ~~other~~ASC ~~comprehensive~~815-20 ~~income~~were: in the accompanying consolidated balance sheets. There was no ineffectiveness recorded as of September 30, 2013. Ineffective portions of future changes in fair value of the instrument will be recognized in other income (expense) in the statement of income and comprehensive income.



		Fair Value
(in thousands)	Balance Sheet Location	June 30, 2014		December 31, 2013
Foreign currency collar	Other long-term assets	$	1,328	$	2,702
	Total Derivatives Assets	$	1,328	$	2,702

At June 30, 2014 and December 31, 2013, the fair values and line item captions of derivative instruments not designated as hedging instruments under FASB ASC 815-20 were:



		Fair Value
(in thousands)	Balance Sheet Location	June 30, 2014		December 31, 2013
Fuel hedges	Other current assets	$	574	$	813
Fuel hedges	Other long-term assets	58		58
	Total Derivatives Assets	$	632	$	871

~~Table~~The effect of ~~Contents~~derivative instruments qualifying and designated as hedging instruments on the consolidated financial statements for the three months ended June 30, 2014, was as follows:

At September 30, 2013 and December 31, 2012, the fair values and line item captions of derivative instruments designated as hedging instruments under FASB ASC 815-20 were:



(in thousands)	Amount of Gain (Loss) Recognized in OCI on Derivative Instruments (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 Instruments (Ineffective Portion excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion excluded from Effectiveness Testing)
Foreign currency collar	$	(1,603	)	N/A	$	—	Other income (expense)	—
Total	$	(1,603	)		$	—		$	—

		Fair Value as of
(in thousands)	Balance Sheet Location	September 30, 2013		December 31, 2012
Foreign currency collar	Other long-term liabilities	$	719	$	—
	Total liabilities	$	719	$	—

The effect of derivative instruments qualifying and designated as hedging instruments on the consolidated financial statements for the six months ended June 30, 2014, was as follows:

At September 30, 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:



(in thousands)	Amount of Gain (Loss) Recognized in OCI on Derivative Instruments (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 Instruments (Ineffective Portion excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion excluded from Effectiveness Testing)
Foreign currency collar	$	(1,374	)	N/A	$	—	Other income (expense)	105
Total	$	(1,374	)		$	—		$	105

		Fair Value as of
(in thousands)	Balance Sheet Location	September 30, 2013		December 31, 2012
Fuel hedges	Other current assets	$	774	$	747
Fuel hedges	Other long-term assets	56		816
	Total derivative assets	$	830	$	1,563
Fuel hedges	Current liabilities - Derivative liabilities	$	—	$	278
	Total derivative liabilities	$	—	$	278

We had no derivative instruments qualifying and designated as hedging instruments on the consolidated financial statements for the three and six months ended June 30, 2013.

The effect of derivative instruments ~~qualifying~~not ~~and~~ designated as hedging instruments on the consolidated financial statements for the three and ~~nine~~six months ended ~~September~~June 30, 2014 and 2013 ~~were~~was:

(in thousands)	Amount of Gain (Loss) Recognized in OCI on Derivative Instruments (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 Instruments (Ineffective Portion excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion excluded from Effectiveness Testing)
	Location of Gain (Loss) Recognized in Income on Derivative Instruments		Amount of Gain (Loss) Recognized in Income on Derivative Instruments
Foreign currency collar	$	(719	)		N/A	$	—		N/A	$	—
			Three Months Ended June 30,
Total	$	(719	)			$	—			$	—
(in thousands)			2014			2013
Fuel hedges	Other income (expense)		655			(1,676		)
Total			$	655		$	(1,676	)

We had no derivative instruments qualifying and designated as hedging instruments for the three and nine months ended September 30, 2012.

Table of Contents



	Location of Gain (Loss) Recognized in Income on Derivative Instruments	Amount of Gain (Loss) Recognized in Income on Derivative Instruments
		Six Months Ended June 30,
(in thousands)		2014		2013
Foreign currency swaps	Other income (expense)	$	—	$	(5	)
Fuel hedges	Other income (expense)	168		(1,100		)
Total		$	168	$	(1,105	)

The effect of derivative instruments not designated as hedging instruments on the consolidated financial statements for the three and nine months ended September 30, 2013 and 2012 were:

	Location of Gain (Loss) Recognized in Income on Derivative Instruments
		Amount of Gain (Loss) Recognized in Income on Derivative Instruments
(in thousands)		For the Three Months ended September 30,
		2013		2012
Foreign currency swap	Other income (expense)	$	—	$	(19	)
Fuel hedges	Other income (expense)	899		4,241
Total		$	899	$	4,222

	Location of Gain (Loss) Recognized in Income on Derivative Instruments	Amount of Gain (Loss) Recognized in Income on Derivative Instruments
(in thousands)		For the Nine Months Ended September 30,
		2013			2012
Foreign currency swap	Other income (expense)	$	—		$	(26	)
Fuel hedges	Other income (expense)	(206		)	2,839
Total		$	(206	)	$	2,813

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.

Table of Contents

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~~

September 30, 2013

December 31, 2012

September 30, 2013

December 31, 2012

June 30, 2014

December 31, 2013

June 30, 2014

December 31, 2013

Long-term bank debt

(a)

~~294~~243,~~432~~603

~~293~~294,~~358~~512

~~285~~244,~~347~~496

~~321~~309,~~972~~738

Senior secured notes

225,000

~~245~~246,~~025~~656

~~239~~249,~~063~~188

Total

~~519~~468,~~432~~603

~~518~~519,~~358~~512

~~530~~491,~~372~~152

~~561~~558,~~035~~926

(a) The carrying value of the long-term bank debt is net of $1.8 million and $2.9 million of original issue discount as of September 30, 2013 and December 31, 2012, respectively.

(a) The carrying value is net of $1.2 million and $1.7 million of original issue discount as of June 30, 2014 and December 31, 2013, respectively.

Long-term bank debt: Level 2 inputs were used to calculate the fair value of our long-term bank debt, which was estimated using the present value of expected future cash flows, ~~which~~and incorporates our risk profile. The valuation also takes into account debt maturity and interest rate based on the contract terms.

~~Senior~~As ~~secured~~previously ~~notes:~~reported ~~Level~~at 1March ~~inputs~~31, ~~were~~2014, ~~used~~we corrected our fair value disclosure for long-term bank debt at December 31, 2013, from $292.6 million to ~~calculate~~$309.7 million. This revision relates to the correction of the discount rate used to fair value the debt. There was no impact to the consolidated balance sheet or statement of ~~our~~income ~~Notes~~and comprehensive income for the year ended December 31, ~~which~~2013. We assessed the materiality of this disclosure error on the previously issued financial statements and concluded that the error was ~~estimated~~immaterial ~~using~~qualitatively ~~quoted~~and ~~market~~quantitatively ~~prices~~to the previously issued financial statements.

~~Other~~Senior ~~financial~~secured ~~instruments~~notes: ~~due~~Level to2 ~~their~~inputs ~~short-term~~were ~~maturities~~used ~~and~~to nocalculate ~~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~~value as of ~~September 30,~~our ~~2013~~senior ~~and~~secured ~~December 31~~notes, ~~2012.~~which Wewas ~~consider~~estimated ~~these~~using ~~inputs~~quoted tomarket ~~be Level 1 as all are observable and require no judgment for valuation~~prices.

(in thousands)		As of September 30, 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)	$	830	$	—	$	830	$	—	$	1,563	$	—	$	1,563	$	—
Total Assets		$	830	$	—	$	830	$	—	$	1,563	$	—	$	1,563	$	—
Liabilities
Derivative financial instruments		$	719	$	—	$	719	$	—	$	278	$	—	$	278	$	—
Total liabilities		$	719	$	—	$	719	$	—	$	278	$	—	$	278	$	—

~~(a)~~Other Asfinancial ofinstruments: ~~September 30,~~Due ~~2013,~~to ~~derivative~~their ~~financial~~short-term ~~instruments~~maturities ~~of $774,000~~ and ~~$56~~no interest rate,~~000~~ ~~are~~currency ~~classified~~or asprice ~~other~~risk, ~~current~~the ~~assets~~carrying amounts of cash and ~~other~~cash ~~long-term~~equivalents, ~~assets~~passenger deposits, ~~respectively~~accrued interest, inand ~~the~~accrued ~~consolidated~~expenses ~~balance~~approximate ~~sheets~~their fair values. As ofWe ~~December 31,~~consider ~~2012,~~these ~~$747,000~~inputs ~~was~~to ~~classified~~be Level 1 as ~~other~~all ~~current~~are ~~assets~~observable and ~~$816,000~~require ~~was~~no ~~classified~~judgment infor ~~other long-term assets~~valuation.

12The following table presents information about our financial instrument assets that are measured at fair value on a recurring basis:

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(in thousands)		As of June 30, 2014								As of December 31, 2013
Description		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Derivative financial instruments	(a)	$	1,960	$	—	$	1,960	$	—	$	3,573	$	—	3,573		$	—
Total Assets		$	1,960	$	—	$	1,960	$	—	$	3,573	$	—	$	3,573	$	—

~~Our~~(a) ~~derivative~~As ~~financial~~of ~~instruments~~June 30, in2014, ~~the~~derivative ~~table~~financial ~~above~~instruments ~~consist~~assets of ~~fuel~~$0.6 ~~hedge~~million ~~swaps~~ and ~~a foreign exchange collar~~$1. ~~Fair~~4 ~~value~~million isare ~~derived~~classified ~~using~~as ~~the~~other ~~valuation~~current ~~models~~assets ~~that~~and ~~utilize~~other ~~the~~long-term ~~income value approach. These valuation models take into account the contract terms~~assets, ~~such as maturity~~respectively, ~~and~~in ~~inputs,~~the ~~such~~consolidated asbalance ~~forward~~sheets. ~~fuel~~As ~~prices,~~of ~~forward exchange rates~~December 31, ~~discount rates~~2013, ~~creditworthiness~~$0.8 ofmillion ~~the~~was ~~counter-party~~classified ~~and us,~~ as ~~well~~other ascurrent ~~other~~assets ~~data~~and ~~points~~$2. ~~The~~8 ~~data~~million ~~sources~~was ~~utilized in these valuation models that are significant to the fair value measurement are~~ classified as ~~Level~~other 2long-term ~~sources~~assets in the ~~fair~~consolidated ~~value~~balance ~~input level hierarchy~~sheets.

Our derivative financial instruments consist of fuel swaps and a foreign currency exchange collar. Fair value is derived using the valuation models that utilize the income value approach. These valuation models take into account the derivative contract terms, such as maturity, and inputs, such as forward fuel prices, forward exchange rates, discount rates, creditworthiness of the counterparty and ourselves, 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. IfFor goodwill, if the carrying amount of the reporting unit exceeds the estimated discounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the reporting unit to its estimated fair value. For indefinite-lived intangible assets, if the carrying amount of the asset 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~~ships, are reviewed for impairment whenever events or changes in circumstances indicate ~~the~~an asset's 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~~its carrying amount ~~of the asset~~ to its estimated fair value. The estimation of fair value measured by undiscounted or discounted expected future cash flows would be considered Level 3 inputs.

WeOur ~~performed our~~ annual ~~goodwill~~ impairment ~~test~~tests asare ~~of September 30, 2013. We bypassed the qualitative assessment and~~ performed ~~the~~as ~~two-step goodwill impairment test comparing estimated fair value to the carrying value~~ of ~~allocated~~September ~~net assets~~30th. ~~Based~~As ~~on the discounted cash flow model, we determined that estimated fair value~~ of ~~the reporting unit exceeded the carrying value and, therefore, we did not proceed to step two of the impairment test. The fair value exceeded its carrying value by 62% as of September~~June 30, ~~2013. The principal assumptions used in our cash flow model related to forecasting future operating results include discount rate~~2014, ~~net~~there ~~revenue~~were ~~yields,~~no ~~net~~events ~~cruise~~or ~~costs including fuel prices, capacity~~ changes, ~~weighted-average~~in ~~cost~~circumstances ofthat ~~capital~~would ~~for~~indicate ~~comparable~~that ~~publicly-traded~~the ~~companies~~carrying ~~and~~amount ~~terminal~~of ~~values, which are all considered level 3 inputs. Cash flows were calculated using~~ our ~~2013 projected operating results as a base. To that base we added projected future years' cash flows, considering the macro~~long-~~economic~~lived ~~factors and internal occupancy level projections~~assets, ~~cost~~goodwill ~~structure~~ and ~~other~~indefinite-lived ~~variables.~~intangible Weassets ~~discounted~~would ~~the~~not ~~projected~~be ~~future years' cash flows using a rate equivalent to our weighted-average cost of capital~~recoverable.

We performed our annual indefinite-lived intangible assets impairment test on our trade name as of September 30, 2013 using the relief-from-royalty method. We bypassed the qualitative assessment and performed the quantitative impairment test comparing the asset's estimated fair value to its carrying value. The royalty rate used is based on comparable royalty agreements in the tourism and hospitality industry, which was applied to the projected revenue to estimate the royalty savings and discounted to fair value. The discount rate used was identical to the rate used in our goodwill quantitative test. Based on the results of the discounted cash flow model, we determined that estimated fair value of our trade name exceeded its carrying value by 86% as of September 30, 2013 and no further action was necessary.

The estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties that require significant judgments when developing assumptions of expected revenues, operating costs, selling and administrative expenses, capital expenditures and future impact of competitive forces. It is reasonably possible that changes in our assumptions and projected operating results used in our cash flow model could lead to an impairment of goodwill and or tradename.

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Note 5. 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, if any, 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.

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, results of operations or cash flows.

Other

As mandated by the Federal Maritime Commission (“"FMC”") 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~~met this obligation as of June 30, 2014 by posting a $1522.0 million surety bond. Our surety bond obligation will increase to $~~22.0 million in April 2014 and $~~30.0 million in April 2015.

InNote ~~October 2012, PCH entered into a software license agreement with a third-party vendor~~6. ~~This~~Accumulated ~~agreement~~Other ~~grants~~Comprehensive 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 during 2012 and $0.5 million was paid during the nine months ended September 30, 2013. The balance is expected to be paid before the end of 2013.Income

OnThe ~~January~~following ~~31,~~schedule ~~2013~~represents ~~our~~the ~~former~~changes ~~President~~in ~~stepped~~accumulated ~~down~~other ~~from~~comprehensive ~~his~~income ~~role~~by ~~and~~component ~~became a consultant to us. We entered into a separation agreement and an independent contractor agreement (“Agreements”) with our former president. Severance of $0.7 million was paid~~ for the ~~year~~three ~~ended December 31, 2012 pursuant to his then-existing employment agreement. The Agreements have terms of 24~~ months and ~~have~~six 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 Agreements. For the nine months ended ~~September~~June 30, ~~2013, we paid $0.2 million under the Agreements. Our estimated amortization expense is $0.3 million and $0.3 million for the years ended December 31, 2013 and~~ 2014~~, respectively.~~:

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.



(in thousands)	Change related to Cash Flow Hedges
	Three Months Ended June 30, 2014			Six Months Ended June 30, 2014
Beginning balance	$	2,826		$	2,702
Other comprehensive income before reclassifications	(1,603		)	(1,374		)
Amount reclassified from accumulated other comprehensive income to other income (expense)	—			(105		)
Net current-period other comprehensive income	(1,603		)	(1,479		)
Ending balance	$	1,223		$	1,223

The gain or loss on the foreign currency collar is deferred, classified as accumulated other comprehensive income and will be reclassified into earnings when the ship is placed into service and amortized over its estimated useful life. At June 30, 2013, the balance in accumulated other comprehensive income was zero. We do not expect any amounts to be reclassified out of accumulated other comprehensive income within the next twelve months.

Note 7. Condensed Consolidating Financial Information

Our $225 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 SSC.

The following condensed consolidating financial statements for SSC and the Guarantors present condensed consolidating statements of income (loss) and comprehensive income (loss) for the three and six months ended June 30, 2014 and 2013, condensed consolidating balance sheets as of June 30, 2014 and December 31, 2013 and condensed consolidating statements of cash flows for the six months ended June 30, 2014 and 2013, 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 are no longer 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

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financial statements. Previously, SSC had charter hire agreements in place with the two UK subsidiaries, which previously owned Seven Seas Voyager and Seven Seas Navigator. These agreements required SSC 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 and depreciation. These charter hire agreements were novated to the new legal entities. On January 1, 2014, these charter hire agreements were terminated. As a result, charter hire fees, crew payroll and deck and engine expenses are no longer recorded to the vessel owning subsidiaries. In addition to the vessel owning subsidiaries, we have a sales and marketing office that is a Guarantor.

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.

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Note 6. Other Comprehensive Income



Condensed Consolidating Balance Sheets
	June 30, 2014
(in thousands)	Parent		Subsidiaries Guarantors			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	141,051	$	2,706		$	—		$	143,757
Restricted cash	59		—			—			59
Trade and other receivables, net	8,657		280			—			8,937
Inventories	8,260		—			—			8,260
Prepaid expenses	21,068		815			—			21,883
Intercompany receivable	264,809		—			(264,809		)	—
Other current assets	2,765		—			—			2,765
Total current assets	446,669		3,801			(264,809		)	185,661
Property and equipment, net	122,363		534,025			—			656,388
Goodwill	404,858		—			—			404,858
Intangible assets, net	80,874		—			—			80,874
Other long-term assets	24,397		—			—			24,397
Investment in subsidiaries	271,956		—			(271,956		)	—
Total assets	$	1,351,117	$	537,826		$	(536,765	)	$	1,352,178

Liabilities and Members' Equity
Current liabilities
Trade and other payables	$	2,574	$	767		$	—		$	3,341
Related party payables	1,413		(594		)	—			819
Intercompany payables	—		264,809			(264,809		)	—
Accrued expenses	41,789		888			—			42,677
Passenger deposits	234,699		—			—			234,699
Current portion of long-term debt	2,218		—			—			2,218
Total current liabilities	282,693		265,870			(264,809		)	283,754
Long-term debt	466,385		—			—			466,385
Other long-term liabilities	15,512		—			—			15,512
Total liabilities	764,590		265,870			(264,809		)	765,651
Commitments and contingencies
Members' equity
Contributed capital	564,959		134,036			(134,036		)	564,959
Retained earnings	20,345		137,920			(137,920		)	20,345
Accumulated other comprehensive income	1,223		—			—			1,223
Total members' equity	586,527		271,956			(271,956		)	586,527
Total liabilities and members' equity	$	1,351,117	$	537,826		$	(536,765	)	$	1,352,178

The following schedule represents the changes in accumulated other comprehensive loss by component for the three and nine month periods ended September 30, 2013 (in thousands):

	Gains and Losses on Cash Flow Hedges
Beginning balance	$	—
Other comprehensive income before reclassifications	(719		)
Amount reclassified from accumulated other comprehensive income	—
Net current-period other comprehensive loss	(719		)
Ending balance	$	(719	)

The amount estimated to be reclassified from accumulated other comprehensive income for the twelve month period ending September 30, 2014 is $0.

Note 7. 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 and comprehensive income for three and nine months ended September 30, 2013 and 2012, condensed consolidating balance sheets as of September 30, 2013 and December 31, 2012 and condensed consolidating statements of cash flows for the nine months ended September 30, 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 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. These charter hire agreements have been novated to the new legal entities. 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

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R.L. and such obligation was recorded as an intercompany payable at the subsidiary level and eliminated within the condensed consolidating balance sheets.



Condensed Consolidating Balance Sheets
	December 31, 2013
(in thousands)	Parent		Subsidiaries Guarantors			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	137,494	$	1,032		$	—		$	138,526
Restricted cash	367					—			367
Trade and other receivables, net	7,503		203			—			7,706
Inventories	4,955		2,397			—			7,352
Prepaid expenses	18,661		2,605			—			21,266
Intercompany receivable	262,359		795			(263,154		)	—
Other current assets	3,007		—			—			3,007
Total current assets	434,346		7,032			(263,154		)	178,224
Property and equipment, net	107,519		543,767			—			651,286
Goodwill	404,858		—			—			404,858
Intangible assets, net	81,324		—			—			81,324
Other long-term assets	36,776		—			—			36,776
Investment in subsidiaries	284,139		—			(284,139		)	—
Total assets	$	1,348,962	$	550,799		$	(547,293	)	$	1,352,468

Liabilities and Members' Equity
Current liabilities
Trade and other payables	$	3,968	$	1,830		$	—		$	5,798
Related party payables	1,985		(425		)	—			1,560
Intercompany payables	795		262,359			(263,154		)	—
Accrued expenses	45,258		2,896			—			48,154
Passenger deposits	194,173		—			—			194,173
Derivative liabilities	2,679		—			—			2,679
Total current liabilities	248,858		266,660			(263,154		)	252,364
Long-term debt	516,833		—			—			516,833
Other long-term liabilities	8,896		—			—			8,896
Total liabilities	774,587		266,660			(263,154		)	778,093
Commitments and contingencies
Members' equity
Contributed capital	564,830		134,036			(134,036		)	564,830
Retained earnings	6,843		150,103			(150,103		)	6,843
Accumulated other comprehensive income	2,702		—			—			2,702
Total members' equity	574,375		284,139			(284,139		)	574,375
Total liabilities and members' equity	$	1,348,962	$	550,799		$	(547,293	)	$	1,352,468

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 nine months ended September 30, 2012 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. These revisions have no impact on the consolidated balance sheet, statement of income and comprehensive income 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 qualitatively and quantitatively to any of our previously issued financial statements. We will revise our previously issued financial statements in future filings.

During the third quarter of 2013, we determined that we did not properly classify $244.3 million of re-payment of debt in our condensed consolidating financial information footnote in our third quarter of 2012 interim period. We should have presented the $244.3 million of re-payment of debt in the statement of cash flows in the Parent column instead of in the Subsidiaries Guarantors column. These revisions have no impact on the consolidated balance sheet, statement of income and comprehensive income 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 error and concluded that the error was not material to any of our previously issued financial statements.

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Condensed Consolidating Balance Sheets
Condensed Consolidating Statements of Income (Loss) and Comprehensive Income (Loss)
	As of September 30, 2013
	Three Months Ended June 30, 2014
(in thousands)	Parent			~~Subsidiary~~Subsidiaries Guarantors			Eliminations			Consolidated
Assets
Revenue
Current assets
Passenger ticket	$	128,784		$	—		$	—		$	128,784
Cash and cash equivalents	$	143,591		$	2,187		$	—		$	145,778
Onboard and other	14,159			1			—			14,160
Restricted cash	367			—			—			367
Related Party Revenue	—			3,873			(3,873		)	—
Trade and other receivable, net	6,785			216			—			7,001
Total revenue	142,943			3,874			(3,873		)	142,944
Inventories	3,916			2,373			—			6,289
Cruise operating expense
Prepaid expenses	24,310			1,075			—			25,385
Commissions, transportation and other	44,455			1,785			(1,758		)	44,482
Intercompany receivable	279,961			547			(280,508		)	—
Onboard and other	4,189			—			—			4,189
Other current assets	2,930			—			—			2,930
Payroll, related and food	19,871			—			—			19,871
Total current assets	461,860			6,398			(280,508		)	187,750
Fuel	10,093			—			—			10,093
Property and equipment, net	98,111			548,636			—			646,747
Other ship operating	10,811			—			—			10,811
Goodwill	404,858			—			—			404,858
Other	3,641			1,221			—			4,862
Intangible assets, net	82,042			—			—			82,042
Total cruise operating expense	93,060			3,006			(1,758		)	94,308
Other long-term assets	31,721			—			—			31,721
Other operating expense
Investment in subsidiaries	271,740			—			(271,740		)	—
Selling and administrative	19,860			2,005			(2,115		)	19,750
Total assets	$	1,350,332		$	555,034		$	(552,248	)	$	1,353,118
Depreciation and amortization	4,916			4,877			—			9,793
Liabilities and Members' Equity
Total operating expense	117,836			9,888			(3,873		)	123,851
Current liabilities
Operating income (loss)	25,107			(6,014		)	—			19,093
Trade and other payables	$	2,168		$	750		$	—		$	2,918
Non-operating income (expense)
Related party payables	2,595			(36		)	—			2,559
Interest income	46			1			—			47
Intercompany payables	547			279,961			(280,508		)	—
Interest expense	(8,168		)	—			—			(8,168		)
Accrued expenses	43,890			2,619			—			46,509
Other income (expense)	716			32			—			748
Passenger deposits	187,885			—			—			187,885
Equity in losses of subsidiaries	(5,988		)	—			5,988			—
Current portion of long-term debt	2,237			—			—			2,237
Total non-operating income (expense)	(13,394		)	33			5,988			(7,373		)
Total current liabilities	239,322			283,294			(280,508		)	242,108
Income (loss) before income taxes	11,713			(5,981		)	5,988			11,720
Long-term debt	517,196			—			—			517,196
Income tax expense	(8		)	(7		)	—			(15		)
Other long-term liabilities	11,040			—			—			11,040
Net income (loss)	11,705			(5,988		)	5,988			11,705
Total liabilities	767,558			283,294			(280,508		)	770,344
Other comprehensive income (loss):
Commitments and Contingencies
Change in fair value of derivatives	(1,603		)	—			—			(1,603		)
Members' equity
Total comprehensive income (loss)	$	10,102		$	(5,988	)	$	5,988		$	10,102
Contributed capital	564,934			134,036			(134,036		)	564,934
Accumulated earnings	18,559			137,704			(137,704		)	18,559
Accumulated other comprehensive loss	(719		)	—			—			(719		)
Total members' equity	582,774			271,740			(271,740		)	582,774
Total liabilities and members' equity	$	1,350,332		$	555,034		$	(552,248	)	$	1,353,118

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Condensed Consolidating Balance Sheets
Condensed Consolidating Statements of Income (Loss) and Comprehensive Income (Loss)
	As of December 31, 2012
	Three Months Ended June 30, 2013
(in thousands)	Parent			~~Subsidiary~~Subsidiaries Guarantors			Eliminations			Consolidated
Assets
Revenue
Current assets
Passenger ticket	$	129,774		$	—		$	—		$	129,774
Cash and cash equivalents	$	98,815		$	1,042		$	—		$	99,857
Onboard and other	12,952			10			—			12,962
Trade and other receivable, net	7,076			203			—			7,279
Related Party Revenue	—			27,910			(27,910		)	—
Related party receivables	1,798			—			—			1,798
Total revenue	142,726			27,920			(27,910		)	142,736
Inventories	4,350			2,222			—			6,572
Cruise operating expense
Prepaid expenses	15,971			1,857			—			17,828
Commissions, transportation and other	49,250			1,528			(1,485		)	49,293
Intercompany receivable	369,828			40,910			(410,738		)	—
Onboard and other	3,791			4			—			3,795
Other current assets	2,692			—			—			2,692
Payroll, related and food	16,743			3,341			—			20,084
Total current assets	500,530			46,234			(410,738		)	136,026
Fuel	10,052			—			—			10,052
Property and equipment, net	74,070			563,254			—			637,324
Other ship operating	7,659			4,416			—			12,075
Goodwill	404,858			—			—			404,858
Other	24,235			1,217			(24,180		)	1,272
Intangible assets, net	83,556			—			—			83,556
Total cruise operating expense	111,730			10,506			(25,665		)	96,571
Other long-term assets	32,950			—			—			32,950
Other operating expense
Investment in subsidiaries	236,220			—			(236,220		)	—
Selling and administrative	19,404			2,110			(2,245		)	19,269
Total assets	$	1,332,184		$	609,488		$	(646,958	)	$	1,294,714
Depreciation and amortization	4,239			4,876			—			9,115
Liabilities and Members' Equity
Total operating expense	135,373			17,492			(27,910		)	124,955
Current liabilities
Operating income	7,353			10,428			—			17,781
Trade and other payables	$	3,557		$	926		$	—		$	4,483
Non-operating income (expense)
Related party payables	—			131			—			131
Interest income	63			1			—			64
Intercompany payables	40,910			369,828			(410,738		)	—
Interest expense	(9,643		)	—			—			(9,643		)
Accrued expenses	41,350			2,383			—			43,733
Other income (expense)	(1,718		)	7			—			(1,711		)
Passenger deposits	169,463			—			—			169,463
Equity in earnings of subsidiaries	10,428			—			(10,428		)	—
Derivative liabilities	278			—			—			278
Total non-operating expense	(870		)	8			(10,428		)	(11,290		)
Total current liabilities	255,558			373,268			(410,738		)	218,088
Income before income taxes	6,483			10,436			(10,428		)	6,491
Long-term debt	518,358			—			—			518,358
Income tax expense	(22		)	(8		)	—			(30		)
Other long-term liabilities	9,635			—			—			9,635
Net income	6,461			10,428			(10,428		)	6,461
Total liabilities	783,551			373,268			(410,738		)	746,081
Total comprehensive income	$	6,461		$	10,428		$	(10,428	)	$	6,461
Commitments and Contingencies
Members' equity
Contributed capital	564,372			134,036			(134,036		)	564,372
Accumulated deficit	(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

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Condensed Consolidating Statements of Income and Comprehensive Income
Condensed Consolidating Statements of Income (Loss) and Comprehensive Income (Loss)
	Three Months Ended September 30, 2013
	Six Months Ended June 30, 2014
(in thousands)	Parent			~~Subsidiary~~Subsidiaries Guarantors			Eliminations			Consolidated
Revenue
Passenger ticket	$	~~149~~247,~~771~~681		$	—		$	—		$247,681	~~149,771~~
Onboard and other	1627,~~185~~531			—1			—			1627,~~185~~532
Related party revenue	—			279,~~534~~374			(279,~~534~~374		)	—
Total revenue	~~165~~275,~~956~~212			279,~~534~~375			(279,~~534~~374		)	~~165~~275,~~956~~213
Cruise operating expense
Commissions, transportation and other	5084,~~312~~678			15,~~128~~207			(15,~~085~~144		)	5084,~~355~~741
Onboard and other	48,~~650~~464			12			—			48,~~651~~466
Payroll, related and food	1739,~~264~~417			~~3,238~~—			—			2039,~~502~~417
Fuel	920,~~855~~754			—			—			920,~~855~~754
Other ship operating	820,~~271~~180			~~2,941~~1			—			1120,~~212~~181
Other	245,~~532~~842			12,~~176~~572			~~(24,446~~—		)	18,~~262~~414
Total cruise operating expense	~~114~~179,~~884~~335			87,~~484~~782			(255,~~531~~144		)	97181,~~837~~973
Selling and administrative	18,405			1,814			(2,003		)	18,216
Other operating expense
Depreciation and amortization	4,187			4,877			—			9,064
Selling and administrative	42,332			4,012			(4,230		)	42,114
Total operating expense	137,476			15,175			(27,534		)	125,117
Depreciation and amortization	9,326			9,754			—			19,080
Operating income	28,480			12,359			—			40,839
Total operating expense	230,993			21,548			(9,374		)	243,167
Non-operating (expense) income
Operating income (loss)	44,219			(12,173		)	—			32,046
Interest income	65			2			—			67
Non-operating income (expense)
Interest expense	(9,375		)	—			—			(9,375		)
Interest income	125			3			—			128
Other income (expense)	1,148			124			—			1,272
Interest expense	(16,742		)	—			—			(16,742		)
Equity in earnings of subsidiaries	12,438			—			(12,438		)	—
Other income (expense)	(1,739		)	(2		)	—			(1,741		)
Total non-operating income (expense)	4,276			126			(12,438		)	(8,036		)
Equity in losses of subsidiaries	(12,183		)	—			12,183			—
Income before income taxes	32,756			12,485			(12,438		)	32,803
Total non-operating income (expense)	(30,539		)	1			12,183			(18,355		)
Income tax benefit (expense), net	132			(47		)	—			85
Income before income taxes	13,680			(12,172		)	12,183			13,691
Net income	32,888			12,438			(12,438		)	32,888
Income tax expense	(178		)	(11		)	—			(189		)
Other comprehensive income:
Net income (loss)	13,502			(12,183		)	12,183			13,502
Loss on change in derivative fair value	(719		)	—			—			(719		)
Other comprehensive income (loss):
Total comprehensive income	$	32,169		$	12,438		$	(12,438	)	$	32,169
Change in fair value of derivatives	(1,374		)	—			—			(1,374		)
Cash flow hedge reclassified into earnings	(105		)	—			—			(105		)
Total comprehensive income (loss)	$	12,023		$	(12,183	)	$	12,183		$	12,023

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Condensed Consolidating Statements of Income and Comprehensive Income
Condensed Consolidating Statements of Income (Loss) and Comprehensive Income (Loss)
	Three Months Ended September 30, 2012
	Six Months Ended June 30, 2013
(in thousands)	Parent			~~Subsidiary~~Subsidiaries Guarantors			Eliminations			Consolidated
Revenue
Passenger ticket	$	~~143~~243,~~152~~212		$	—		$	—		$	~~143~~243,~~152~~212
Onboard and other	1523,~~850~~831			1110			—			1523,~~861~~841
Related party revenue	—			25,996			(25,996		)	—
Related Party Revenue	—			55,548			(55,548		)	—
Total revenue	~~159~~267,~~002~~043			2655,~~007~~558			(2555,~~996~~548		)	~~159~~267,~~013~~053
Cruise operating expense
Commissions, transportation and other	5389,~~778~~166			~~924~~3,526			(~~870~~3,483		)	5389,~~832~~209
Onboard and other	46,~~852~~457			—18			—			46,~~852~~475
Payroll, related and food	1732,~~054~~758			36,~~262~~662			—			2039,~~316~~420
Fuel	921,~~203~~529			—			—			921,~~203~~529
Other ship operating	814,~~878~~253			37,~~371~~461			—			1221,~~249~~714
Other	2348,~~306~~258			12,~~112~~358			(2348,~~506~~095		)	~~912~~2,521
Total cruise operating expense	~~117~~212,~~071~~421			820,~~669~~025			(2451,~~376~~578		)	~~101~~180,~~364~~868
Selling and administrative	16,970			1,907			(1,620		)	17,257
Other operating expense
Depreciation and amortization	4,281			6,287			—			10,568
Selling and administrative	41,350			4,169			(3,970		)	41,549
Total operating expense	138,322			16,863			(25,996		)	129,189
Depreciation and amortization	8,614			9,754			—			18,368
Operating income	20,680			9,144			—			29,824
Total operating expense	262,385			33,948			(55,548		)	240,785
Non-operating (expense) income
Operating income	4,658			21,610			—			26,268
Interest income	134			1			—			135
Non-operating income (expense)
Interest expense	(8,242		)	(1,048		)	—			(9,290		)
Interest income	137			2			—			139
Other income (expense)	3,089			(2,915		)	—			174
Interest expense	(19,691		)	—			—			(19,691		)
Equity in earnings of subsidiaries	5,169			—			(5,169		)	—
Other income (expense)	(5,136		)	(59		)	—			(5,195		)
Total non-operating expense	150			(3,962		)	(5,169		)	(8,981		)
Equity in earnings of subsidiaries	21,533			—			(21,533		)	—
Income before income taxes	20,830			5,182			(5,169		)	20,843
Total non-operating income (expense)	(3,157		)	(57		)	(21,533		)	(24,747		)
Income tax benefit (expense), net	149			(13		)	—			136
Income before income taxes	1,501			21,553			(21,533		)	1,521
Net income and comprehensive income	$	20,979		$	5,169		$	(5,169	)	$	20,979
Income tax expense	(89		)	(20		)	—			(109		)
Net income	1,412			21,533			(21,533		)	1,412
Total comprehensive income	$	1,412		$	21,533		$	(21,533	)	$	1,412

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Condensed Consolidating Statements of Income and Comprehensive Income
Condensed Consolidating Statements of Cash Flows
	Nine Months Ended September 30, 2013
	Six Months Ended June 30, 2014
(in thousands)	Parent			~~Subsidiary~~Subsidiaries Guarantors			Eliminations			Consolidated
Revenue
Net cash provided by operating activities	$	71,884		$	1,699		$	—		$	73,583
Passenger ticket	$	392,983		$	—		$	—		$	392,983
Cash flows from investing activities
Onboard and other	40,026			—			—			40,026
Purchases of property and equipment	(24,033		)	(12		)	—			(24,045		)
Related party revenue	—			82,921			(82,921		)	—
Change in restricted cash	12,326			—			—			12,326
Total revenue	433,009			82,921			(82,921		)	433,009
Other	(75		)	—			—			(75		)
Cruise operating expense
Net cash used in investing activities	(11,782		)	(12		)	—			(11,794		)
Commissions, transportation and other	139,478			4,655			(4,569		)	139,564
Cash flows from financing activities
Onboard and other	11,107			19			—			11,126
Repayment of long-term debt	(51,480		)	—			—			(51,480		)
Payroll, related and food	50,022			9,900			—			59,922
Debt related costs	(4,621		)	—			—			(4,621		)
Fuel	31,384			—			—			31,384
PCI offering costs	(321		)	—			—			(321		)
Other ship operating	22,524			10,403			—			32,927
Net cash used in financing activities	(56,422		)	—			—			(56,422		)
Other	72,791			3,534			(72,542		)	3,783
Effect of exchange rate changes on cash and cash equivalents	(123		)	(13		)	—			(136		)
Total cruise operating expense	327,306			28,511			(77,111		)	278,706
Net increase in cash and cash equivalents	3,557			1,674			—			5,231
Selling and administrative	59,592			5,983			(5,810		)	59,765
Cash and cash equivalents
Depreciation and amortization	12,802			14,630			—			27,432
Beginning of period	137,494			1,032			—			138,526
Total operating expense	399,700			49,124			(82,921		)	365,903
End of period	$	141,051		$	2,706		$	—		$	143,757
Operating income	33,309			33,797			—			67,106
Non-operating (expense) income
Interest income	202			4			—			206
Interest expense	(29,066		)	—			—			(29,066		)
Other income (expense)	(3,988		)	64			—			(3,924		)
Equity in earnings of subsidiaries	33,799			—			(33,799		)	—
Total non-operating expense	947			68			(33,799		)	(32,784		)
Income before income taxes	34,256			33,865			(33,799		)	34,322
Income tax benefit (expense), net	42			(66		)	—			(24		)
Net income	34,298			33,799			(33,799		)	34,298
Other comprehensive income:
Loss on change in derivative fair value	(719		)	—			—			(719		)
Total comprehensive income	$	33,579		$	33,799		$	(33,799	)	$	33,579



Condensed Consolidating Statements of Cash Flows
	Six Months Ended June 30, 2013
(in thousands)	Parent			Subsidiaries Guarantors			Eliminations		Consolidated
Net cash provided by operating activities	$	60,615		$	797		$	—	$	61,412
Cash flows from investing activities
Purchases of property and equipment	(4,945		)	(10		)	—		(4,955		)
Change in restricted cash	7,970			—			—		7,970
Other	(127		)	—			—		(127		)
Net cash provided by (used in) investing activities	2,898			(10		)	—		2,888
Cash flows from financing activities
Debt related costs	(959		)	—			—		(959		)
Payments on other financing obligations	(2,000		)	—			—		(2,000		)
Net cash used in financing activities	(2,959		)	—			—		(2,959		)
Effect of exchange rate changes on cash and cash equivalents	(154		)	(37		)	—		(191		)
Net increase in cash and cash equivalents	60,400			750			—		61,150
Cash and cash equivalents
Beginning of period	98,815			1,042			—		99,857
End of period	$	159,215		$	1,792		$	—	$	161,007

~~Table~~Item 2. Management’s Discussion and Analysis of ~~Contents~~Financial Condition and Results of Operations

Condensed Consolidating Statements of Income and Comprehensive Income
	Nine Months Ended September 30, 2012
(in thousands)	Parent			Subsidiary Guarantors			Eliminations			Consolidated
Revenue
Passenger ticket	$	372,806		$	—		$	—		$	372,806
Onboard and other	39,064			18			—			39,082
Related party revenue	—			79,099			(79,099		)	—
Total revenue	411,870			79,117			(79,099		)	411,888
Cruise operating expense
Commissions, transportation and other	141,009			4,323			(4,232		)	141,100
Onboard and other	10,258			2			—			10,260
Payroll, related and food	48,945			9,392			—			58,337
Fuel	31,751			—			—			31,751
Other ship operating	23,787			8,833			—			32,620
Other	74,698			3,346			(70,007		)	8,037
Total cruise operating expense	330,448			25,896			(74,239		)	282,105
Selling and administrative	54,350			5,768			(4,860		)	55,258
Depreciation and amortization	11,253			18,858			—			30,111
Total operating expense	396,051			50,522			(79,099		)	367,474
Operating income	15,819			28,595			—			44,414
Non-operating income (expense)
Interest income	357			3			—			360
Interest expense	(20,503		)	(4,853		)	—			(25,356		)
Other income (expense)	1,107			(2,947		)	—			(1,840		)
Equity in earnings of subsidiaries	20,757			—			(20,757		)	—
Total non-operating income (expense)	1,718			(7,797		)	(20,757		)	(26,836		)
Income before income taxes	17,537			20,798			(20,757		)	17,578
Income tax expense, net	(24		)	(41		)	—			(65		)
Net income and comprehensive income	$	17,513		$	20,757		$	(20,757	)	$	17,513

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Condensed Consolidating Statements of Cash Flows
	Nine Months Ended September 30, 2013
(in thousands)	Parent			Subsidiary Guarantors			Eliminations		Consolidated
Net cash provided by operating activities	$	80,839		$	1,156		$	—	$	81,995
Cash flows from investing activities
Purchases of property and equipment	(32,249		)	(13		)	—		(32,262		)
Change in restricted cash	7,585			—			—		7,585
Acquisition of non-compete	(165		)	—			—		(165		)
Net cash used in investing activities	(24,829		)	(13		)	—		(24,842		)
Cash flows from financing activities
Debt related costs	(9,239		)	—			—		(9,239		)
Payments on other financing obligations	(2,000		)	—			—		(2,000		)
Net cash used in financing activities	(11,239		)	—			—		(11,239		)
Effect of exchange rate changes on cash and cash equivalents	5			2			—		7
Net increase in cash and cash equivalents	44,776			1,145			—		45,921
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	$	143,591		$	2,187		$	—	$	145,778

Condensed Consolidating Statements of Cash Flows
	Nine Months Ended September 30, 2012
(in thousands)	Parent			Subsidiary Guarantors			Eliminations		Consolidated
Net cash provided by operating activities	$	68,353		$	1,322		$	—	$	69,675
Cash flows from investing activities
Purchases of property and equipment	(19,546		)	(1		)	—		(19,547		)
Change in restricted cash	509			—			—		509
Net cash used in investing activities	(19,037		)	(1		)	—		(19,038		)
Cash flows from financing activities
Repayment of debt	(293,500		)	—			—		(293,500		)
Net proceeds from the issuance of debt	297,000			—			—		297,000
Debt related costs	(6,860		)	—			—		(6,860		)
Payments on other financing obligations	(2,000		)	—			—		(2,000		)
Net cash used in financing activities	(5,360		)	—			—		(5,360		)
Effect of exchange rate changes on cash and cash equivalents	63			13			—		76
Net increase in cash and cash equivalents	44,019			1,334			—		45,353
Cash and cash equivalents
Cash and cash equivalents at beginning of period	67,771			849			—		68,620
Cash and cash equivalents at end of period	$	111,790		$	2,183		$	—	$	113,973

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Concerning Factors That May Affect Future Results

The discussion under this caption “"Management’'s Discussion and Analysis of Financial Condition and Results of Operations”" and elsewhere in this ~~document~~quarterly report includes forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects and objectives of management for future operations (including development plans and objectives relating to our activities), made in this quarterly report are forward-looking. Many, but not all, of these statements can be found by looking for terms like “expect,” “anticipate,” “goal,” “project,” “plan,” “believe,” “seek,” “could,” “will,” “may,” “might,” “forecast,” “estimate,” “intend,” and “future” and for similar words. Forward-looking statements reflect management’'s current expectations and do not guarantee future performance and may involve risks, uncertainties and other factors that are difficult to predict and many of which are beyond our control. These factors could cause our actual results, performance, or achievements to differ materially from the future results, performance, or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to:


•	adverse economic conditions that may affect consumer demand for cruises, such as declines in the securities and real estate markets, declines in disposable income and consumer confidence;


•	changes in cruise capacity, as well as capacity changes in the overall vacation industry;


•	intense competition from other cruise companies, as well as non-cruise vacation alternatives, which may affect our ability to compete effectively;


•	the delivery schedules and estimated costs of newbuilds, in particular Seven Seas Explorer, on terms that are favorable or consistent with our expectations;


•	our substantial leverage, including the inability to generate the necessary amount of cash to service our existing debt and the incurrence of substantial indebtedness in the future;

• continued availability under our ~~credit~~loan ~~facilities~~agreements and compliance with ~~our~~the covenants under our loan agreements and our senior secured notes;


•	changes in interest rates, fuel costs, or foreign currency rates;


•	the risks associated with operating internationally;


•	changes in general economic, business and geopolitical conditions;

• the impact of changes in the global credit markets on our ability to borrow and our ~~counter~~counterparty ~~party~~ credit risks, including with respect to our ~~credit~~loan ~~facilities~~agreements, derivative instruments, contingent obligations and insurance contracts;


•	the impact of problems encountered at shipyards, as well as any potential claim, impairment, loss, cancellation or breach of contract in connection with any contracts we have with shipyards;


•	the impact of any future changes relating to how travel agents sell and market our cruises;


•	the impact of any future increases in the price of, or major changes or reduction in, commercial airline services;


•	the impact of seasonal variations in passenger fare rates and occupancy levels at different times of the year;


•	adverse events impacting the security of travel that may affect consumer demand for cruises, such as terrorist acts, acts of piracy, armed conflict and other international events, including political hostilities or war;


•	the impact of the spread of contagious diseases;

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•	the impact of mechanical failures or accidents involving our ships and the impact of delays, costs and other factors resulting from emergency ship repairs, as well as scheduled maintenance, repairs and refurbishment of our ships;


•	accidents, criminal behavior and other incidents affecting the health, safety, security and vacation satisfaction of passengers and causing damage to ships, which could, in each case, cause reputation harm, the modification of itineraries or cancellation of a cruise or series of cruises;


•	the continued availability of attractive port destinations;

• our ability to attract and retain qualified shipboard crew members and key personnel; ~~and~~


•	the impact of any breaches in our data security or other disturbances to our information technology and other networks; and


•	changes involving the corporate, tax, environmental, health, safety and other regulatory regimes in which we operate.

The above examples are not exhaustive. From time to time, new risks emerge and existing risks increase in relative importance to our operations. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based. Such forward-looking statements are based on our current beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment in which we will operate in the future. These forward-looking statements speak only as of the date of this report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and in our risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on March 811, ~~2013~~2014.

Key Operational and Financial Metrics, including Non-GAAP

We ~~utilize~~use a variety of operational and financial metrics which are defined below to evaluate our performance and financial condition. AsWe ~~discussed in more detail herein, we~~ use certain non-GAAP measures, such as EBITDA, Adjusted EBITDA, Net Per ~~Diem~~Diems, Net ~~Yield~~Yields, and Net Cruise ~~Cost,~~Costs ~~which~~to ~~allow~~enable us to ~~perform~~analyze ~~capacity~~our performance and ~~rate~~financial ~~analysis~~condition. We use these financial measures to ~~separate~~manage our business on a day-to-day basis and believe that they are the ~~impact~~most relevant measures of ~~known~~our ~~capacity~~performance. ~~changes~~Some ~~from~~of ~~other~~these ~~less~~measures ~~predictable~~are ~~changes~~commonly ~~which~~used ~~affect~~in ~~our~~the ~~business~~cruise industry to measure performance. We believe these non-GAAP measures provide expanded insight to measure revenue and cost performance, in addition to the standard United States GAAP based financial measures. There are no specific rules or regulations for determining non-GAAP measures, and as such, there exists the possibility that they may not be comparable to other companies within ~~the~~our industry. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Adjusted EBITDA is net income (loss) excluding depreciation and amortization, interest income, interest expense, other income (expense), and income tax benefit (expense), and other supplemental adjustments in connection with the calculation of certain financial ratios in accordance with our credit agreements. Management believes Adjusted EBITDA, when considered along with other performance measures, is a useful measure as it reflects certain operating drivers of our business, such as sales growth, operating costs, selling and administrative expense, and other operating income and expense. Management believes Adjusted EBITDA can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future. While Adjusted EBITDA is not a recognized measure under GAAP, management uses this financial measure to evaluate and forecast our business performance. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments, and tax payments, and it is subject to certain additional adjustments as permitted under our debt agreement. Our use of Adjusted EBITDA may not be comparable to other companies within our industry. Management compensates for these limitations by using Adjusted EBITDA as only one of several measures for evaluating our business performance. In addition, capital expenditures, which impact depreciation and amortization, interest expense, and income tax benefit (expense), are reviewed separately by management.

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Available Passenger Cruise Days (“APCD”) is our measurement of capacity and represents double occupancy per cabin multiplied by the number of cruise days for the period. We use this measure to perform capacity and rate analysis to identify our main non-capacity drivers which cause our cruise revenue and expense to vary.

EBITDA is net income (loss) excluding depreciation and amortization, net interest expense, and income tax benefit (expense).

Adjusted EBITDA is net income (loss) excluding depreciation and amortization, interest income, interest expense, other income (expense), and income tax benefit (expense), and other supplemental adjustments in connection with the calculation of certain financial ratios in accordance with our debt agreements. Management believes Adjusted EBITDA, when considered along with other performance measures, is a useful measure as it reflects certain operating drivers of our business, such as sales growth, operating costs, selling and administrative expense, and other operating income and expense. Management believes Adjusted EBITDA can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future. While Adjusted EBITDA is not a recognized measure under GAAP, management uses this financial measure to evaluate and forecast our business performance. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments, and tax payments, and it is subject to certain additional adjustments as permitted under our debt agreement. Our use of Adjusted EBITDA may not be comparable to other companies within our industry. Management compensates for these limitations by using Adjusted EBITDA as only one of several measures for evaluating our business performance. In addition, capital expenditures, which impact depreciation and amortization, interest expense, and income tax benefit (expense), are reviewed separately by management.

Gross Cruise Cost represents the sum of total cruise operating expense plus selling and administrative expense.

Gross Yield represents total revenue per APCD.

Net Cruise Cost represents Gross Cruise Cost excluding commissions, transportation and other expense, and onboard and other expense (each of which is described ~~above~~below under Description of Certain Line Items).

Net ~~Per~~Cruise Diem represents Net Revenue divided by Passenger Days Sold. We utilize Net Per Diem to manage our business on a day-to-day basis as we believe that it is the most relevant measure of our pricing performance as it reflects the revenues earned by usCost, ~~net~~excluding ofFuel ~~our~~and ~~most significant variable costs.~~ Other ~~cruise~~represents ~~lines~~Gross ~~use~~Cruise ~~Net~~Cost ~~Yield~~excluding tocommissions, ~~analyze~~transportation ~~business~~and ~~which is a similar measurement that divides Net Revenue by APCD instead of Passenger Days Sold. The distinction is significant as~~ other ~~cruise~~expense, ~~companies focus more on potential~~ onboard ~~sales~~and ~~resulting~~other ~~in a bias to fill each bed to maximize onboard revenue~~expense, atfuel ~~the~~ expense ofand ~~passenger~~other ~~ticket~~expense ~~revenue.~~(each ~~Conversely,~~of aswhich ~~our product~~ is ~~substantially~~described ~~all-inclusive,~~below weunder ~~derive~~Description ~~nearly all~~ of ~~our~~Certain ~~revenue~~Line ~~from passenger ticket revenue~~Items). Hence it is far more important for us to maintain a pricing discipline focusing on passenger ticket revenue rather than to discount cruises in order to achieve higher occupancy to drive potential onboard revenues. We believe that this pricing discipline drives our revenue performance, our relatively long booking window, and allows us to maintain a positive relationship with the travel agency community.

Net ~~Revenue~~Per Diem represents ~~total~~Net ~~revenue~~Revenue ~~less~~divided ~~commissions,~~by ~~transportation~~Passenger ~~and~~Days ~~other expense, and onboard and other expense (each of which is described above under Description of Certain Line Items)~~Sold.

Net Revenue represents total revenue less commissions, transportation and other expense, and onboard and other expense (each of which is described below under Description of Certain Line Items).

Net Yield represents Net Revenue per APCD.

Occupancy is calculated by dividing Passenger Days Sold by APCD.

Passenger Days Sold (“PDS”) represents the number of revenue passengers carried for the period multiplied by the number of days within the period of their respective cruises.

Critical Accounting Estimates

For a discussion of our critical accounting estimates, refer to Management’'s Discussion and Analysis of Financial Condition and Results of Operations ~~within~~in our ~~annual~~Annual ~~report~~Report on Form 10-K ~~filed~~for ~~with~~ the ~~Securities~~year ~~and~~ended ~~Exchange~~December ~~Commission~~31, 2013, filed with the SEC on March 811, ~~2013~~2014.

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 ship sales 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 as of January 1, 2013. The effect of the change on both operating income and net loss for the three and nine month period ended September 30, 2013 is approximately $1.3 million and $4.0 million of reduced depreciation expense, respectively. The estimated impact of this change for full year 2013 is a reduction of depreciation expense of approximately $5.3 million. We

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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.

Seasonality

Our revenues are seasonal, and based on demand for cruises. Demand is strongest for cruises during the Northern Hemisphere’'s summer months and holidays. In order to mitigate the impact of the winter weather in the Northern Hemisphere and to capitalize on the summer season in the Southern Hemisphere, we deploy our ships to South America, Asia, Australia, the South Pacific and the Caribbean during the Northern Hemisphere winter months.

Financial Presentation

Description of Certain Line Items

Revenues

Our revenue consists of the following:


•	Passenger ticket revenue consists of gross revenue recognized from the sale of passenger tickets net of dilutions, such as shipboard credits and certain included passenger shipboard event costs. Also included is gross revenue for air and related ground transportation sales.

• Onboard and other revenue consists of revenue derived from the sale of goods and services rendered onboard the ships (net of related concessionaire costs), travel insurance (net of related costs), and cancellation fees. Also included in Onboard and other revenue is gross revenue from pre- and post-cruise hotel accommodations, shore excursions, land packages, and ground transportation for which we assume the risks of loss for collections and cancellations. ~~Our~~Certain of our cruises include free unlimited shore excursions (“FUSE”) and/or free pre-cruise hotel accommodations, and such free excursions and hotel accommodations have no revenue attributable to them. The costs for FUSE and free ~~hotel accommodations are included in commissions, transportation and other expense in the consolidated statements of income and comprehensive income.~~pre-cruise

hotel accommodations are included in commissions, transportation and other expense in the consolidated statements of income and comprehensive income.

•

Cash collected in advance for future cruises is recorded as a passenger deposit liability. Those deposits for sailings traveling more than 12 months in the future are classified as a long-term liability. We recognize the revenue associated with these cash collections in the period in which the cruise occurs. For cruises that occur over multiple periods, revenue is prorated and recognized ratably in each period based on the overall length of the cruise. Cancellation fee revenue, along with associated commission expense and travel insurance revenue, if any, are recorded in the period the cancellation occurs.

Expenses

Cruise Operating Expense

Our cruise operating expense consists of the following:

• Commissions, transportation and other consists of payments made to travel agencies that sell our product, costs associated with air and related ground transportation pre-sold to our guests, all credit card fees, and the costs associated with ~~shore~~FUSE ~~excursions~~ and pre-cruise hotel accommodations included as part of the overall cruise purchase price.

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•	Onboard and other consists of costs related to land packages and ground transportation, as well as shore excursions and hotel accommodations costs not included in commissions, transportation and other.

•

Payroll, related and food consists of the costs of crew payroll and related expenses for shipboard personnel, as well as food expenses for both passengers and crew. We include food and payroll costs in a single expense line item as we contract with a single vendor to provide many of our hotel and restaurant services, including both food and labor costs, which are billed on a per-passenger basis. This per-passenger fee reflects the cost of both of the aforementioned expenses.


•	Fuel consists of fuel costs and related delivery and storage costs.


•	Other ship operating consists of port, deck and engine, certain entertainment-related expenses, and hotel consumables expenses.

• Other consists primarily of drydock, ship insurance costs, and loss on disposals ~~of assets~~.

Selling and administrative expense

Selling and administrative expense includes advertising and promotional activities, ~~as well as~~ shoreside personnel wages, benefits and expenses relating to our worldwide offices, professional fees, information technology support, our reservation call centers, and related support activities. Such expenditures are generally expensed in the period incurred.

28Recently Adopted and Future Application of Accounting Standards

~~Table~~Refer ofto ~~Contents~~"Note 1. General" New Accounting Pronouncements in the notes to the consolidated financial statements.

Executive Overview

~~Revenue~~• Second quarter 2014 revenue was $~~166~~142.09 million, an increase of 4$0.42 million or 0.1% over the ~~third~~second quarter of ~~2012 on improved pricing and increased occupancy.~~ 2013;

• Adjusted EBITDA ~~was~~increased 4.6% to $5029.58 million, ain ~~22.9%~~the ~~increase~~second ~~compared~~quarter ~~with~~of 2014 from $4128.15 million in the ~~third~~second quarter of ~~2012.~~2013;

• Net Yield ~~for the third quarter of 2013~~ increased 107.68% to $~~638~~561.0885 ~~from 577.00~~ in the ~~third~~second quarter ~~2012, while Net Income was $32.9 million in the third quarter~~ of ~~2013~~2014 ~~compared~~from ~~to Net Income of~~ $21521.024 ~~million~~ in the ~~third~~second quarter of ~~2012.~~2013;

~~Net~~• ~~Cruise~~Occupancy ~~Cost~~decreased ~~per~~by ~~APCD,~~1.5 ~~excluding~~percentage ~~Fuel~~points ~~and~~to ~~Other expense, increased 0~~95.24% tofor ~~$287.15~~the insecond ~~2013~~quarter of 2014 from ~~$286~~96.539% infor the ~~third~~second quarter of ~~2012.~~2013;

~~Fuel~~• ~~expense,~~Available ~~net~~Passenger ofCruise ~~settled~~Days ~~hedges,~~decreased ~~was~~to ~~$9.7~~167,790 ~~million~~ in the ~~third~~second quarter of ~~2013~~2014 ~~compared~~from to171,990 ~~$9.1~~in ~~million for~~ the ~~third~~second quarter of ~~2012~~2013, ~~driven~~due byto ~~higher~~6 ~~prices~~days onof ~~flat~~the ~~consumption~~10-day ~~per~~scheduled ~~APCD.~~Seven Seas Mariner drydock occurring during April 2014;

• Net Cruise Cost, excluding Fuel and Other, ~~expense~~per ~~was~~APCD, $1increased 0.35% ~~million~~ in the ~~third~~second quarter of ~~2013~~2014 ~~compared~~versus tothe ~~$0.9~~same ~~million~~period ~~for~~2013 ~~the~~due ~~third~~to ~~quarter~~fewer ofAvailable ~~2012.~~Passenger Cruise Days;

29• Fuel expense, net of settled fuel hedges was $9.8 million for the second quarter of 2014 compared to $10.1 million for the second quarter of 2013; and,

~~Table~~• Other expense was $4.9 million for the second quarter of ~~Contents~~2014 compared to $1.3 million in the second quarter of 2013 due to 6 days of the 10-day scheduled Seven Seas Mariner drydock occurring during April 2014.

Results of Operations

Operating results for the three months ended ~~September~~June 30, ~~2013,~~2014 compared to the ~~same~~three ~~period~~months inended ~~2012~~June 30, 2013 are shown in the following table ~~(in thousands)~~:

	Three Months Ended September 30,
	Three Months Ended June 30,
	2013					2012
	2014					2013
				% of Total Revenues					% of Total Revenues
(in thousands)				% of Total Revenues					% of Total Revenues
Revenue
Passenger ticket	$	~~149~~128,~~771~~784		90.21	%	$	~~143~~129,~~152~~774		90.09	%
Onboard and other	1614,~~185~~160			9.89	%	1512,~~861~~962			109.01	%
Total revenue	~~165~~142,~~956~~944			100.0	%	~~159~~142,~~013~~736			100.0	%
Cruise operating expense
Commissions, transportation and other	5044,~~355~~482			3031.31	%	5349,~~832~~293			3334.95	%
Onboard and other	4,~~651~~189			2.89	%	43,~~852~~795			32.17	%
Payroll, related and food	2019,~~502~~871			1213.49	%	20,~~316~~084			1214.81	%
Fuel	910,~~855~~093			57.91	%	910,~~203~~052			57.80	%
Other ship operating	1110,~~212~~811			67.86	%	12,~~249~~075			78.75	%
Other	14,~~262~~862			03.84	%	~~912~~1,272			0.69	%
Total cruise operating expense	9794,~~837~~308			5966.0	%	~~101~~96,~~364~~571			6367.7	%
Other operating expense
Selling and administrative	1819,~~216~~750			1113.08	%	1719,~~257~~269			1013.95	%
Depreciation and amortization	9,~~064~~793			56.59	%	109,~~568~~115			6.64	%
Total operating expense	~~125~~123,~~117~~851			7586.46	%	~~129~~124,~~189~~955			8187.25	%
Operating income	4019,~~839~~093			2413.64	%	2917,~~824~~781			1812.85	%
Non-operating income (expense)
Interest income	6747			—	%	~~135~~64			~~0.1~~—	%
Interest expense	(98,~~375~~168		)	(5.67	)%	(9,~~290~~643		)	(56.8	)%
Other income (expense)	~~1,272~~748			0.85	%	~~174~~(1,711		)	0.(1.2	)%
Total non-operating expense	(87,~~036~~373		)	(45.82	)%	(811,~~981~~290		)	(57.69	)%
Income before income taxes	3211,~~803~~720			~~19.~~8.2	%	206,~~843~~491			134.15	%
Income tax expense	85(15		)	~~0.1~~—	%	~~136~~(30		)	~~0.1~~—	%
Net income	$	3211,~~888~~705		~~19.~~8.2	%	$	206,~~979~~461		134.25	%

3027

~~Table~~Operating ofresults ~~Contents~~for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 are shown in the following table:

Operating results for the nine months ended September 30, 2013, compared to the same period in 2012, are shown in the following table (in thousands):



	Six Months Ended June 30,
	2014					2013
(in thousands)				% of Total Revenues					% of Total Revenues
Revenue
Passenger ticket	$	247,681		90.0	%	$	243,212		91.1	%
Onboard and other	27,532			10.0	%	23,841			8.9	%
Total revenue	275,213			100.0	%	267,053			100.0	%

Cruise operating expense
Commissions, transportation and other	84,741			30.8	%	89,209			33.4	%
Onboard and other	8,466			3.1	%	6,475			2.4	%
Payroll, related and food	39,417			14.3	%	39,420			14.8	%
Fuel	20,754			7.5	%	21,529			8.1	%
Other ship operating	20,181			7.3	%	21,714			8.1	%
Other	8,414			3.1	%	2,521			0.9	%
Total cruise operating expense	181,973			66.1	%	180,868			67.7	%
Other operating expense
Selling and administrative	42,114			15.3	%	41,549			15.6	%
Depreciation and amortization	19,080			6.9	%	18,368			6.9	%
Total operating expense	243,167			88.4	%	240,785			90.2	%
Operating income	32,046			11.6	%	26,268			9.8	%

Non-operating income (expense)
Interest income	128			—	%	139			0.1	%
Interest expense	(16,742		)	(6.1	)%	(19,691		)	(7.4	)%
Other income (expense)	(1,741		)	(0.6	)%	(5,195		)	(1.9	)%
Total non-operating expense	(18,355		)	(6.7	)%	(24,747		)	(9.3	)%
Income before income taxes	13,691			5.0	%	1,521			0.6	%
Income tax expense	(189		)	(0.1	)%	(109		)	—	%
Net income	$	13,502		4.9	%	$	1,412		0.5	%

	Nine Months Ended September 30,
	2013					2012
				% of Total Revenues					% of Total Revenues
Revenue
Passenger ticket	$	392,983		90.8	%	$	372,806		90.5	%
Onboard and other	40,026			9.2	%	39,082			9.5	%
Total revenue	433,009			100.0	%	411,888			100.0	%
Cruise operating expense
Commissions, transportation and other	139,564			32.2	%	141,100			34.3	%
Onboard and other	11,126			2.6	%	10,260			2.5	%
Payroll, related and food	59,922			13.8	%	58,337			14.2	%
Fuel	31,384			7.2	%	31,751			7.7	%
Other ship operating	32,927			7.6	%	32,620			7.9	%
Other	3,783			0.9	%	8,037			2.0	%
Total cruise operating expense	278,706			64.4	%	282,105			68.5	%
Other operating expense
Selling and administrative	59,765			13.8	%	55,258			13.4	%
Depreciation and amortization	27,432			6.3	%	30,111			7.3	%
Total operating expense	365,903			84.5	%	367,474			89.2	%
Operating income	67,106			15.5	%	44,414			10.8	%
Non-operating income (expense)
Interest income	206			—	%	360			0.1	%
Interest expense	(29,066		)	(6.7	)%	(25,356		)	(6.2	)%
Other income (expense)	(3,924		)	(0.9	)%	(1,840		)	(0.4	)%
Total non-operating expense	(32,784		)	(7.6	)%	(26,836		)	(6.5	)%
Income before income taxes	34,322			7.9	%	17,578			4.3	%
Income tax expense	(24		)	—	%	(65		)	—	%
Net income	$	34,298		7.9	%	$	17,513		4.3	%

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The following table sets forth selected statistical information. Passenger Days Sold refers to the number of revenue passengers carried for the period multiplied by the number of days within the period in their respective cruises. Available Passenger Cruise Days refers to a measurement of capacity that represents double occupancy per suite multiplied by the number of cruise days for the period.

		Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended June 30,						Six Months Ended June 30,
		2013			2012			2013			2012
	2014			2013			2014			2013
Passenger Days Sold	160,098	~~169,659~~		166,583	~~167,691~~		319,155	~~492,769~~		323,110	~~485,665~~
APCD		173,880			173,880			515,970			509,040
Available Passenger Cruise Days	167,790			171,990			335,090			342,090
Occupancy	95.4	~~97.6~~%	%	96.9	~~96.4~~%	%	95.2	~~95.5~~%	%	94.5	~~95.4~~%	%

Adjusted EBITDA was calculated as follows:

(in thousands)	Three Months ~~EndedSeptember~~Ended June 30,						~~Nine~~Six Months ~~EndedSeptember~~Ended June 30,
	2013			2012			2013			2012
	2014			2013			2014			2013
Net income	$	3211,~~888~~705		$	206,~~979~~461		$	3413,~~298~~502		$	171,~~513~~412
Interest income	(6747		)	(~~135~~64		)	(~~206~~128		)	(~~360~~139		)
Interest expense	98,~~375~~168			9,~~290~~643			2916,~~066~~742			2519,~~356~~691
Depreciation and amortization	9,~~064~~793			109,~~568~~115			2719,~~432~~080			3018,~~111~~368
Income tax expense, net	~~(85~~15		)	~~(136~~30		)	24189			65109
Other (income) expense	(~~1,272~~748		)	~~(174~~1,711		)	31,~~924~~738			15,~~840~~195
Equity-based compensation/transactions (a)	~~143~~391			~~177~~178			~~572~~581			~~676~~429
Fuel hedge gain (b)	151			75			214			1,377
Fuel hedge gain (loss) (b)	338			(84		)	408			64
Loss on disposal (c)	—26			—			—187			~~303~~—
Other addback expenses per credit agreement (d)	~~304~~137			~~484~~1,471			~~3,111~~416			12,~~359~~808
Adjusted EBITDA	$	5029,~~501~~778		$	4128,~~128~~461		$	9852,~~435~~715		$	7847,~~240~~937


(a)	Equity-based compensation/transactions represent stock compensation expense in each period.

(b) Fuel hedge gain (loss) represents the realized gain (loss) on fuel hedges triggered by the settlement of the hedge instrument and is included in other income (expense).

(c) Loss on disposal primarily represents asset write-~~off~~offs ofduring ~~property~~vessel ~~and~~drydock ~~equipment during drydocks~~periods.

(d) Other addback expenses per credit agreement represents the net impact of ~~time out of service as a result of unplanned repairs to vessels;~~ expenses associated with professional fees and other costs associated with raising capital through debt and equity offerings; and certain ~~litigation~~legal fees. Also included are ~~restructuring~~costs ~~charges~~ associated with personnel changes and other corporate reorganizations to improve efficiencies.

3229

~~Table~~In ofthe ~~Contents~~following table, Net Per Diem is calculated by dividing Net Revenue by Passenger Days Sold, Gross Yield is calculated by dividing total revenue by Available Passenger Cruise Days, and Net Yield is calculated by dividing Net Revenue by Available Passenger Cruise Days as follows:

In the following table, Net Per Diem is calculated by dividing net revenue by Passenger Days Sold, Gross Yield is calculated by dividing total revenue by Available Passenger Cruise Days, and Net Yield is calculated by dividing net revenue by Available Passenger Cruise Days as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except Passenger Days Sold, Available Passenger Cruise Days, Net Per Diem, and Yield data)	2014		2013		2014		2013
Passenger ticket revenue	$	128,784	$	129,774	$	247,681	$	243,212
Onboard and other revenue	14,160		12,962		27,532		23,841
Total revenue	142,944		142,736		275,213		267,053
Less:
Commissions, transportation and other expense	44,482		49,293		84,741		89,209
Onboard and other	4,189		3,795		8,466		6,475
Net Revenue	$	94,273	$	89,648	$	182,006	$	171,369

Passenger Days Sold	160,098		166,583		319,155		323,110
Available Passenger Cruise Days	167,790		171,990		335,090		342,090
Net Per Diem	$	588.85	$	538.16	$	570.27	$	530.37
Gross Yield	$	851.92	$	829.91	$	821.31	$	780.65
Net Yield	$	561.85	$	521.24	$	543.16	$	500.95

(in thousands, except Passenger Days Sold, Available Passenger Cruise Days, Net Per Diem, and Yield data)	Three Months Ended September 30,				Nine Months EndedSeptember 30,
	2013		2012		2013		2012
Passenger ticket revenue	$	149,771	$	143,152	$	392,983	$	372,806
Onboard and other revenue	16,185		15,861		40,026		39,082
Total revenue	165,956		159,013		433,009		411,888
Less:
Commissions, transportation and other expense	50,355		53,832		139,564		141,100
Onboard and other expense	4,651		4,852		11,126		10,260
Net Revenue	$	110,950	$	100,329	$	282,319	$	260,528
Passenger Days Sold	169,659		167,691		492,769		485,665
APCD	173,880		173,880		515,970		509,040
Net Per Diem	$	653.96	$	598.30	$	572.92	$	536.44
Gross Yield	954.43		914.50		839.21		809.15
Net Yield	638.08		577.00		547.16		511.80

In the following table, Gross Cruise Cost per Available Passenger Cruise Days is calculated by dividing Gross Cruise Cost by Available Passenger Cruise Days, and Net Cruise Cost per Available Passenger Cruise Days is calculated by dividing Net Cruise Costs by Available Passenger Cruise Days.

(in thousands, except APCD data)	Three Months Ended June 30,	~~Three Months EndedSeptember 30,~~					Six Months Ended June 30,	~~Nine Months EndedSeptember 30,~~
		2013			2012			2013			2012
	2014			2013			2014			2013
Total cruise operating expense	$	$94,308	~~97,837~~	$	$96,571	~~101,364~~	$	$181,973	~~278,706~~	$	$180,868	~~282,105~~
Selling and administrative expense	19,750	~~18,216~~		19,269	~~17,257~~		42,114	~~59,765~~		41,549	~~55,258~~
Gross Cruise Cost	114,058	~~116,053~~		115,840	~~118,621~~		224,087	~~338,471~~		222,417	~~337,363~~
Less:
Commissions, transportation and other expense	44,482	~~50,355~~		49,293	~~53,832~~		84,741	~~139,564~~		89,209	~~141,100~~
Onboard and other expense		4,651			4,852			11,126			10,260
Onboard and other	4,189			3,795			8,466			6,475
Net Cruise Cost	65,387	~~61,047~~		62,752	~~59,937~~		130,880	~~187,781~~		126,733	~~186,003~~
Less:
Fuel	10,093	~~9,855~~		10,052	~~9,203~~		20,754	~~31,384~~		21,529	~~31,751~~
Other expense	4,862	~~1,262~~		1,272	~~912~~		8,414	~~3,783~~		2,521	~~8,037~~
Net Cruise Cost, excluding Fuel and Other	$	$50,432	~~49,930~~	$	$51,428	~~49,822~~	$	$101,712	~~152,614~~	$	$102,683	~~146,215~~
APCD		173,880			173,880			515,970			509,040
Available Passenger Cruise Days	167,790			171,990			335,090			342,090
Gross Cruise Cost per APCD	$	$679.77	~~667.43~~	$	$673.53	~~682.20~~	$	$668.74	~~655.99~~	$	$650.17	~~662.74~~
Net Cruise Cost per APCD	$	~~351~~389.0970		$	~~344~~364.7086		$	~~363~~390.9458		$	~~365~~370.4047
Net Cruise Cost, excluding Fuel and Other, per APCD	$	~~287~~300.1557		$	~~286~~299.5302		$	~~295~~303.7854		$	~~287~~300.2416

3330

~~Table~~Three ofMonths ~~Contents~~Ended June 30, 2014 compared to Three Months Ended June 30, 2013

Three Months Ended September 30, 2013 ("2013") Compared to Three Months Ended September 30, 2012 ("2012")

Revenue

Total revenue increased $7.0.2 million, or 40.41%, to $~~166~~142.09 million infor Q3the ~~2013~~three months ended June 30, 2014 from $~~159~~142.07 million infor Q3the ~~2012~~three months ended June 30, 2013. This increase was ~~mainly~~primarily due to the following:

• ~~Passenger~~Onboard ~~ticket~~and other revenue increased by $61.62 million, or 49.62%, to $~~149~~14.82 million infor ~~2013~~the three months ended June 30, 2014 from $~~143~~13.20 million infor ~~2012.~~the ~~Higher~~three ~~pricing~~months ~~accounted~~ended ~~for~~June $430, 2013.9 ~~million~~The ofincrease ~~the~~in ~~change~~Onboard ~~while~~and ~~increased~~other ~~occupancy~~revenue ~~attributed~~was attributable to an increase of $1.7 million in onboard and other spend partially offset by $0.5 million in fewer PDS due to 6 days of the ~~increase.~~10-day scheduled Seven Seas Mariner drydock occurring during April 2014; and

• ~~Onboard~~Passenger ~~and~~ticket ~~other~~ revenue ~~increased~~decreased by $01.30 million, or 10.98%, to $16128.28 million infor ~~2013~~the three months ended June 30, 2014 from $15129.98 million infor ~~2012~~the three months ended June 30, 2013 primarily ~~from~~caused ~~increased~~by ~~occupancy~~fewer PDS totaling $5.1 million due to 6 days of the 10-day scheduled Seven Seas Mariner drydock occurring during April 2014, partially offset by a $4.1 million increase in ticket prices.

Cruise Operating Expense

Total cruise operating expense decreased $32.63 million, or 32.63%, to $9794.83 million infor ~~2013~~the three months ended June 30, 2014 from $~~101~~96.46 million infor ~~2012.~~the ~~The~~three ~~decrease~~months ~~was~~ended ~~mainly~~June 30, 2013, primarily due to the following decreases:

• $34.58 million ~~decrease~~ in ~~Commissions~~Commission, transportation and other, primarily due to a $2.1 million decrease in airfare due to lower air costs and air participation. Additionally, there was a $1.8 million decrease in commissions due to change in channel mix including increase in charter sales in 2013.;

• $1.03 million ~~decrease~~ in Other ship operating, ~~primarily driven by lower Hotel expenses of $0.5 million and lower Deck & Engine~~ costs; ~~of $0.4 million.~~and

• $0.2 million ~~decrease~~ in ~~Onboard~~Payroll, related and ~~Other~~food costs due to ~~costs~~lower ~~associated~~occupancy ~~with~~primarily ~~shore~~attributable ~~excursions~~to 6 days of the10-day scheduled Seven Seas Mariner drydock occurring during April 2014.

~~The~~Partially ~~decrease~~offset ~~was~~by ~~partially~~the ~~offset~~following byincreases:

• $03.76 million ~~increase~~ in ~~Fuel~~Other ~~driven~~expense byprimarily aattributable ~~7.1% increase in our average cost per Metric Ton~~ to ~~$727~~6 ~~per~~days ~~Metric~~of ~~Ton~~the in10-day ~~2013~~scheduled ~~from~~Seven ~~$679~~Seas ~~per~~Mariner ~~Metric~~drydock ~~Ton~~occurring induring ~~2012~~April ~~while~~2014; ~~consumption per APCD was flat.~~and

• $0.4 million ~~increase~~ in ~~Other~~Onboard ~~expenses~~and ~~was~~other ~~primarily~~resulting ~~due~~from toincreases ~~vessel~~in ~~insurance~~costs for destination services.

• $0.2 million increase in Payroll, related and food, due to increased occupancy.

Selling and Administrative Expense

Selling and administrative expense ~~in 2013~~ increased by $0.95 million, or 5.2.5%, to $1819.28 million infor ~~2013~~the three months ended June 30, 2014 from $1719.3 million infor ~~2012~~the three months ended June 30, 2013. The increase was ~~primarily~~ due to ~~increased~~an ~~sales~~increase ~~and marketing expenses~~ of $0.63 million ~~and~~in ~~increased~~marketing ~~general~~costs and ~~administrative~~an ~~expenses~~increase of $0.32 million in general and administrative costs.

Depreciation and Amortization Expense

Depreciation and amortization expense in 2013 decreased $1.5 million, or 14.2%, to $9.1 million from $10.6 million in 2012. As of January 1, 2013, we increased each ship's projected residual value resulting in $1.3 million of reduced depreciation expense compared to 2012.

Table of Contents

Non-Operating Income (Expense)

Total non-operating expense ~~in 2013~~ decreased $13.09 million, or 1134.17% , to $87.04 million for the three months ended June 30, 2014 from $911.03 million infor ~~2012~~the three months ended June 30, 2013. The decrease was ~~mainly~~ due to the following:

• ~~Other~~Interest ~~income (~~expense) ~~increased~~decreased $1.14 million, toor $115.3%, ~~million~~to ~~from~~ $08.2 million infor ~~2012.~~the ~~The~~three ~~increase~~months ~~was~~ended ~~primarily~~June ~~driven~~30, by2014 afrom ~~net gain of~~ $0.9.6 million onfor ~~fuel~~the ~~hedge~~three ~~contracts~~months ~~due~~ended toJune an30, ~~increase in fuel prices in~~ 2013~~. In 2012~~, wedue ~~had~~to ~~a loss on~~ the ~~extinguishment~~amendment of ~~debt~~our offirst ~~$4.5~~lien ~~million~~credit ~~for~~facility ~~refinancing~~in ofFebruary ~~our~~2014, ~~first~~which ~~lien~~reduced ~~term~~our ~~loan,~~interest ~~offset~~rate bycombined awith ~~net~~the ~~gain~~repayment of $451.25 million onof ~~fuel~~principal; ~~hedges. There were no debt extinguishment costs in 2013.~~and

~~The~~• ~~decrease~~Other ~~was~~income ~~partially~~(expense) ~~offset~~decreased by: $2.5 million, or 143.7%, to other income, net of $0.7 million for the three months ended June 30, 2014 from other expense, net of $1.7 million for the three months ended June 30, 2013. For the three months ended June 30, 2014, we recorded a net gain of $0.7 million on our fuel hedge contracts as compared to a net loss of $1.7 million on our fuel hedge contracts for the three months ended June 30, 2013.

• Interest expense increased $0.1 million, or 1.1%, to $9.4 million in 2013, from $9.3 million in 2012. The increase was due to the refinancing of our first lien term loan in August 2012 with a new term loan bearing a higher interest rate.31

Net Yield

Net Yield increased by 10$40.661, or 7.8%, to $~~638~~561.0885 infor ~~2013~~the three months ended June 30, 2014 from $~~577~~521.0024 infor ~~2012~~the three months ended June 30, 2013, which was primarily due to ~~increases~~increased pricing and a decrease in our ~~ticket~~Commissions, ~~prices~~transportation and other expense.

Net Cruise Cost per APCD

Net Cruise Cost per APCD increased by 1$24.984, or 6.8%, to $~~351~~389.0970 infor ~~2013~~the three months ended June 30, 2014 from $~~344~~364.7086 infor ~~2012~~the ~~due~~three tomonths ~~increased~~ended ~~sales~~June ~~and~~30, ~~marketing~~2013 ~~costs~~primarily asdue ~~well~~to asdrydock ~~higher~~costs. ~~fuel~~Net ~~expense.~~Cruise ~~Excluding~~Cost, excluding fuel ~~cost~~ and other ~~expense~~, ~~Net Cruise Cost~~ per APCD increased by $1.55, or 0.25%, to $~~287~~300.1557 infor ~~2013~~the three months ended June 30, 2014 from $~~286~~299.5302 infor ~~2012~~the three months ended June 30, 2013 due to fewer APCD, which were attributable to 6 days of the 10-day scheduled Seven Seas Mariner drydock.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2013~~2014 ~~(“2013”)~~compared ~~Compared~~ to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2012~~2013 ~~(“2012”)~~

Revenue

Total revenue increased $218.12 million, or 53.1%, to $~~433~~275.02 million infor ~~2013~~the six months ended June 30, 2014 from $~~411~~267.91 million infor ~~2012~~the six months ended June 30, 2013. This increase was ~~mainly~~primarily due to the following:

• Passenger ticket revenue increased $204.25 million, or 51.48%, to $~~393~~247.07 million infor ~~2013~~the six months ended June 30, 2014, from $~~372~~243.82 million infor ~~2012~~the six months ended June 30, ~~driven~~2013, byas a result of a $~~14.~~7.5 million increase ~~due~~in toticket ~~pricing~~prices ~~and~~partially offset by a $53.50 million ~~increase~~decrease due to ~~additional~~lower PDS.; and

• Onboard and other revenue increased $03.97 million, or 215.35%, to $4027.05 million infor ~~2013~~the ~~compared~~six tomonths ended June 30, 2014 from $3923.18 million infor ~~2012~~the ~~driven~~six bymonths ended June 30, 2013, which was due to a $04.60 million increase ~~due~~in toonboard ~~additional~~and ~~PDS~~other spend and a $0.3 million ~~increase~~decrease due to ~~pricing~~lower ~~increases~~PDS.

Table of Contents

Cruise Operating Expense

Total cruise operating expense ~~decreased~~increased $31.41 million, or 10.26%, to $~~278~~182.70 million infor ~~2013~~the six months ended June 30, 2014 from $~~282~~180.19 million infor ~~2012.~~the ~~The~~six ~~decrease~~months ~~was~~ended ~~mainly~~June 30, 2013, primarily due to the following increases:

• $45.39 million ~~decrease~~ in Other, ~~due~~expense toprimarily ~~costs~~attributable ~~associated~~to ~~with~~ the 10-day scheduled Seven Seas ~~Navigator~~Mariner drydock inoccurring ~~2012. There were no scheduled drydocks~~ during ~~the~~2014; ~~first nine months of 2013.~~and

• $12.50 million ~~decrease~~ in ~~Commissions,~~Onboard ~~transportation~~ and ~~other~~Other isresulting primarily ~~driven~~from byincreases ~~lower commissions due to changes~~ in ~~channel~~costs ~~mix,~~for ~~including~~destination ~~increase in charter sales in 2013~~services.

•Partially ~~$0.4 million decrease in Fuel driven by a 2.2% decrease in our average cost per Metric Ton to $722 per Metric Ton in 2013 from $738 per Metric Ton in 2012 partially~~ offset by anthe ~~increase~~following ~~in metric tons consumed, although at a slightly lower consumption per APCD.~~decreases:

~~The~~• ~~decrease~~$4.5 ~~was~~million ~~offset~~in ~~by:~~commission, transportation and other;

• $10.68 million ~~increase~~ in ~~Payroll,~~fuel ~~related and food due to cost increases in hotel services~~ costs asdriven aby ~~result~~lower ofprices ~~increased~~and ~~occupancy.~~consumption; and

• $01.95 million ~~increase~~ in ~~Onboard and~~ other ~~due~~ship tooperating ~~increased other destination services and shore excursion~~ costs.

• $0.3 million increase in Other ship operating caused by higher deck and engine costs.

Selling and Administrative Expense

Selling and administrative expense ~~for 2013~~ increased by $40.56 million, or 8.1.4%, to $5942.81 million infor ~~2013~~the six months ended June 30, 2014 from $5541.35 million infor ~~2012.~~the ~~The~~six ~~increase~~months ~~was~~ended ~~driven~~June by30, $32013.3 ~~million~~The ofincrease ~~higher~~was ~~sales~~due ~~and~~to ~~marketing~~an ~~expenses~~increase ~~and~~of $20.18 million ofin ~~professional~~marketing ~~fees and administrative~~ costs, offset by ~~lower~~a ~~rent~~reduction ~~and~~in ~~office~~general ~~related~~and administrative costs oftotaling $0.92 million.

Depreciation and Amortization Expense

Depreciation and amortization expense in 2013 decreased $2.7 million, or 9.0%, to $27.4 million from $30.1 million in 2012. As of January 1, 2013, we increased each ship's projected residual value resulting in $4.0 million of reduced depreciation expense compared to 2012. This decrease was primarily offset by an increase in depreciation on vessel refurbishment of $1.3 million.

Non-Operating Income (Expense)

Total non-operating expense indecreased ~~2013 increased~~ $6.04 million, or 2225.48%, to $3218.84 million for the six months ended June 30, 2014 from $2624.87 million infor ~~2012~~the six months ended June 30, 2013. The ~~increase~~decrease was due ~~mainly~~to ~~due~~the tofollowing:

• Interest expense ~~increased~~decreased $32.79 million, or 1415.60%, to $2916.17 million infor ~~2013,~~the ~~from~~six ~~$25.4~~months ~~million~~ended inJune ~~2012~~30, ~~driven~~2014 byfrom ~~the~~$19.7 ~~refinancing~~million offor ~~our~~the ~~first~~six ~~lien~~months ~~term~~ended ~~loan~~June in30, ~~August~~2013, ~~2012~~due ~~with~~to athe ~~new~~amendment ~~term~~of ~~loan~~our ~~bearing~~first alien ~~higher interest rate margin.~~credit

• Other income (expense) increased $2.1 million to $3.9 million expense in 2013, from $1.8 million expense in 2012. In 2013, we had a loss on the extinguishment of debt of $3.7 million as a result of the repricing of32

36facility in February 2014, which reduced our interest rate combined with the repayment of $51.5 million of principal.

~~Table~~• Other income (expense) decreased by $3.5 million, or 66.5%, to $1.7 million for the six months ended June 30, 2014 from $5.2 million for the six months ended June 30, 2013. For the six months ended June 30, 2014, we recorded a loss on the extinguishment of ~~Contents~~debt totaling $2.0 million as a result of amending our first lien credit facility and a gain on fuel hedges of $0.3 million. For the six months ended June 30, 2013, we had a loss on the extinguishment of debt of $3.7 million as a result of the repricing of our first lien term loan, a net loss of $1.1 million on our fuel hedge contracts and a $0.4 million foreign currency transaction loss.

our first lien term loan and a net loss of $0.2 million on our fuel hedge contracts. In 2012, we had a loss on the extinguishment of debt of $4.5 million as part of our refinancing of our first lien term loan and a $0.1 million foreign currency transaction loss, offset by a net gain of $2.8 million on fuel hedges.

Net Yield

Net Yield increased by 6$42.921, or 8.4%, to $~~547~~543.16 infor ~~2013~~the six months ended June 30, 2014 from $~~511~~500.8095 infor ~~2012~~the six months ended June 30, 2013, which was primarily due to ~~increases~~an increase in our ticket ~~prices~~price and a decrease in costs.

Net Cruise Cost per APCD

Net Cruise Cost per APCD ~~decreased~~increased by 0$20.11, or 5.4%, to $~~363~~390.9458 infor ~~2013~~the six months ended June 30, 2014 from $~~365~~370.4047 infor ~~2012~~the onsix ~~lower~~months ~~drydock~~ended ~~and~~June ~~fuel~~30, 2013 primarily due to drydock costs. Net Cruise Cost, excluding fuel and other, per APCD increased by $3.038, or 1.1%, to $~~295~~303.7854 infor ~~2013~~the six months ended June 30, 2014 from $~~287~~300.2416 infor ~~2012~~the six months ended June 30, ~~primarily~~2013, due to ~~increased~~fewer ~~deck~~APCD ~~and~~which ~~engine~~were ~~costs~~attributable to the 10-day scheduled Seven Seas Mariner drydock occurring during 2014.

Recently Adopted and Future Application of Accounting Standards

Refer to Note 1, Basis of Presentation, within the accompanying Consolidated Financial Statements. 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 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 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. See Footnote 6: Other Comprehensive Income for details.

In July 2013, the Financial Accounting Standards Board issued ASU 2013-10, Inclusion of the Federal Funds Effective Swap Rate as a benchmark interest rate for hedge accounting purposes. This guidance is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. We adopted this guidance as of July 17, 2013, and it did not have a material impact on our consolidated financial statements.

Table of Contents

Liquidity and Capital Resources

Sources and Uses of Cash

Net ~~cash~~Cash ~~provided~~Provided by ~~operating~~Operating ~~activities~~Activities increased by $12.3 million to $82.0 million in 2013, from $69.7 million in 2012, driven by an increase in net income adjusted for non-cash items (such as depreciation, amortization, stock compensation, and an unrealized loss on derivative contracts) of $11.2 million, an increase in passenger deposits of $8.3 million offset by a decrease in other working capital of $7.2 million.

Net cash ~~used~~provided inby ~~investing~~operating activities increased by $512.82 million to $2473.86 million infor ~~2013~~the ~~compared~~six tomonths ended June 30, 2014, from $1961.04 million infor ~~2012~~the six months ended June 30, 2013. The ~~increase~~change was primarily due to ~~higher~~an ~~capital~~increase ~~expenditures~~in income and other non-cash income/expense totaling $13.8 million partially offset by a ~~release~~decrease ofin ~~restricted~~working ~~cash. Higher~~ capital ~~expenditures~~ of $121.7 million. ~~was~~The ~~due~~unfavorable tochange ~~Seven~~in ~~Seas~~working ~~Explorer~~capital ~~down~~was ~~payment~~primarily ofattributable ~~$22.0~~to ~~million~~the intiming ~~2013~~of ~~offset~~payments byof ~~Seven~~trade ~~Seas~~and ~~Navigator~~other ~~scheduled~~payable ~~drydock~~resulting in ~~2012~~a ~~while~~decrease ~~there~~of ~~were~~$9.4 nomillion ~~scheduled~~partially ~~drydocks~~offset by an increase in ~~2013~~passenger deposits of $7.3 million. The ~~net~~favorable change in ~~restricted~~income ~~cash~~and ofother ~~$7.1~~non-cash ~~million~~income/expense was primarily due to ~~the~~an ~~return~~increase in net income of $812.01 million, ~~held~~a asdecrease ~~collateral~~in ~~for~~write-offs/fees aassociated ~~surety~~with ~~bond~~the ~~mandated~~amendment byto ~~the~~our ~~Federal~~term ~~Maritime~~loan ~~Commission~~totaling $1.6 ~~The~~million, ~~surety~~which ~~provider~~included ~~released~~a ~~the~~reduction ~~collateral~~in ~~requirement~~the ~~following~~interest rate, a ~~periodic~~decrease ~~review~~in the unrealized loss on derivatives of ~~our~~$1.1 ~~business~~million and ~~future~~other ~~surety~~changes ~~needs~~in non-cash income/expense.

Net ~~cash~~Cash ~~used~~Used in ~~financing~~Investing ~~activities~~Activities ~~increased $5.8 million to $11.2 million in 2013, from $5.4 million in 2012. The increase was due to debt related costs associated with the repricing of our first lien credit facility in February 2013.~~

Net cash used in investing activities increased $14.7 million to $11.8 million for the six months ended June 30, 2014 from net cash provided by investing activities of $2.9 million for the six months ended June 30, 2013. The change was primarily due to an increase in capital expenditures of $19.1 million due to the scheduled drydock of Sevens Seas Mariner in 2014, partially offset by the net change in restricted cash of $4.4 million resulting from the release of $12.0 million in restricted cash no longer required to cash collateralize an outstanding letter of credit during 2014 and the addition of $8.0 million held as collateral for a surety bond mandated by the Federal Maritime Commission during 2013.

Net Cash Used in Financing Activities

Net cash used in financing activities was $56.4 million for the six months ended June 30, 2014 compared to $3.0 million for the six months ended June 30, 2013. During the six months ended June 30, 2014, we made principal payments of $51.5 million on our first lien term loan which included a $50.3 million prepayment and scheduled payments of $1.2 million. Additionally, we paid $4.6 million in debt related costs. During the six months ended June 30, 2013, we paid $2.0 million for previously acquired Regent licensing rights and $1.0 million in debt related costs.

Funding Sources and Future Commitments

AsAt ~~of September~~ June 30, ~~2013~~2014, our liquidity was $~~185~~183.8 million, consisting of $~~145~~143.8 million in cash and cash equivalents and $40.0 million available under our revolving credit facility. We had a working capital deficit of $5498.41 million asat ~~of September~~ June 30, ~~2013,~~2014 as compared to ~~our~~a working capital deficit of $8274.1 million asat of December 31, ~~2012. The change is due primarily to a larger cash balance at September 30,~~ 2013. Similar to others in our industry, we operate with a substantial working capital deficit. This deficit is ~~mainly~~ attributable to the following factors: (1i) passenger deposits are normally paid in advance with a relatively low-level of accounts receivable, (2ii) rapid turnover results in a limited investment in inventories, and (3iii) voyage-related accounts payable usually become due after receipt of cash from related bookings. Passenger deposits remain a liability until the sailing date,; however, the cash generated from these advance receipts, as allowed by certain jurisdictions, is used interchangeably with cash on hand from other sources, such as our revolving credit ~~facilities~~facility and other cash from operations. This cash can be used to fund operating expenses for the applicable future sailing, pay down ~~revolving~~our credit ~~facilities~~facility, orfund ~~any~~payments ~~other~~on ~~use~~new ofvessels ~~cash~~or other uses.

InOn ~~addition~~February 7, 2014, we ~~financed~~amended ~~the~~our ~~purchase~~existing $340.0 million credit facility, consisting of ~~our~~a ~~ships~~$300.0 ~~through~~million ~~long-~~term loan and a $40.0 million revolving credit ~~agreements~~facility. In conjunction with this amendment, $50.3 million of ~~which~~the term loan was prepaid such that the ~~current~~outstanding ~~portion~~balance on the term loan of ~~these~~$296.3 ~~instruments~~million ~~increase~~was ~~our~~reduced ~~working~~to ~~capital~~$246.0 ~~deficit~~million. The ~~current~~interest ~~portion~~rate ofmargin ~~long-~~on the amended term ~~debt~~loan ~~was~~is $2.275% ~~million~~compared atto ~~September~~3.50% ~~30,~~on ~~2013.~~the Wepreviously ~~generated~~existing ~~substantial~~term ~~cash~~loan ~~flows~~and the LIBOR floor was reduced from ~~operations,~~1.25% ~~and~~to ~~our~~1.00%. ~~business~~There ~~model,~~was ~~along~~no ~~with~~change ~~our~~to the terms of the $40.0 million revolving credit facility, ~~has~~the ~~historically~~financial ~~allowed~~covenants usor tothe ~~maintain~~maturity ~~this~~date ~~working~~of ~~capital~~the ~~deficit~~credit ~~and~~facility. ~~still~~Also ~~meet~~during ~~our~~the ~~operating,~~six ~~investing~~months ~~and~~ended ~~financing~~June ~~needs.~~30, We2014, ~~expect~~we ~~that~~made wescheduled ~~will~~principal ~~continue~~payments toof ~~have~~$1.2 ~~working~~million ~~capital~~on ~~deficits~~our infirst ~~the~~lien ~~future.~~term loan.

We have contractual obligations of which our debt maturities represent our largest funding requirement. AsThe only material change to our contractual obligations that occurred during the six months ended June 30, 2014 was a result of ~~September~~the amendment described in the preceding paragraph. As of June 30, ~~2013~~2014, we have $~~521~~469.38 million in future debt maturities,. ofSee ~~which~~"Note ~~$2.~~3. ~~million~~Debt" isin ~~payable~~the ~~through~~accompanying ~~September~~notes ~~30,~~to ~~2014.~~consolidated financial statements.

WeThe ~~believe~~agreements governing our ~~cash~~indebtedness oncontain ~~hand,~~a ~~expected~~number ~~future~~of covenants that impose operating ~~cash~~and ~~inflows~~financial restrictions, ~~additional~~including ~~borrowings~~requirements ~~under~~that ~~existing~~we ~~facilities~~maintain a minimum liquidity level, ~~our~~a ~~ability~~maximum loan-to-value ~~issue~~ratio, ~~debt~~a ~~securities~~minimum interest coverage ratio (applicable only to our revolving credit facility, if drawn) and restrictions on our ~~ability~~and toour ~~raise~~subsidiaries' ~~additional~~ability ~~equity~~to, ~~including~~among ~~capital~~other ~~contributions~~things, ~~will~~incur beadditional ~~sufficient~~indebtedness, toincur ~~fund~~liens ~~operations~~on assets, ~~debt~~make ~~service~~certain ~~requirements~~investments, ~~and~~issue ~~capital~~disqualified ~~expenditures,~~stock and topreferred ~~maintain~~stock, ~~compliance~~make ~~with~~restricted ~~financial~~payments, ~~covenants~~pay ~~under~~dividends ~~our~~or ~~credit~~make ~~agreements~~distributions, ~~over~~enter ~~the~~into ~~next~~certain ~~twelve-month~~transactions ~~period.~~with ~~There~~affiliates, isand noconsolidate ~~assurance~~or ~~that~~sell ~~cash~~certain ~~flows~~key ~~from~~assets. ~~operations~~As ~~and~~of ~~additional~~June 30, ~~fundings~~2014, ~~will~~we beare ~~available~~ in ~~the~~compliance ~~future~~with toall ~~fund~~financial ~~our~~debt ~~future obligations~~covenants.

38On July 15, 2014, pursuant to the ship construction contract for our newbuild, Seven Seas Explorer, we made a payment of approximately $23.4 million to Fincantieri for the second installment payment.

~~Table~~We ofbelieve ~~Contents~~our cash on hand, expected future operating cash inflows, additional borrowings under our credit facility, our ability to issue debt securities, and our ability to raise additional equity, including capital contributions, will be sufficient over the next twelve-month period to fund operations, debt service requirements and capital expenditures, as well as maintain compliance with financial covenants under the agreements governing our indebtedness. There is no assurance; however, that cash flows from operations and additional fundings will be available in the future to fund our future obligations.

~~Contractual~~As ~~Obligations~~a normal part of our business, depending on market conditions, pricing and our overall growth strategy, we may consider opportunities to enter into contracts for building additional ships. We may also consider the sale of ships, the purchase of existing ships, potential acquisitions and strategic alliances. If any of these were to occur, they would be financed through the incurrence of additional indebtedness, the issuance of additional capital contributions, or through cash flows from operations.

As of September 30, 2013, our contractual obligations with initial or remaining terms in excess of one year, including interest expense on long-term debt obligations, were as follows:

	Payments Due By Period
(in thousands)	Total		Less than1 year		1 - 3 years		3 - 5 years		More than5 years
Interest on long-term debt (1)	$	199,853	$	34,567	$	68,719	$	68,149	$	28,418
Operating lease obligations	1,118		752		366		—		—
Maintenance contract obligations (2)	5,832		1,707		3,414		711		—
Purchase obligations - equipment	5,210		1,585		2,979		646		—
Purchase obligations - newbuild	423,605		22,295		401,310		—		—
Acquisition of non-compete (3)	463		150		313		—		—
Long-term debt (4)	521,250		2,250		6,000		6,000		507,000
Capital lease obligation (5)	9,625		542		1,810		1,902		5,371
Total	$	1,166,956	$	63,848	$	484,911	$	77,408	$	540,789

(1) Long-term debt obligations mature at various dates through fiscal year 2019 and bear interest at fixed and variable rates. Interest on variable rate debt is calculated based upon LIBOR, with a floor of 1.25%, plus the applicable margin ("All In Rate"). At September 30, 2013, the All In Rate was 4.75% and was used to estimate all periods. Amounts are based on existing debt obligations and do not consider potential refinancing of expiring debt obligations.

(2) Amounts represent obligations under the five year maintenance agreement with a third party vendor for certain equipment purchases and monthly maintenance fees. The contract was signed on March 1, 2012 and has a term of sixty months.

(3) Amounts represent obligations under the separation and independent contractor agreement with our former President. The contract was effective on January 31, 2013 and has a term of twenty-four months.

(4) Amounts represent debt obligations with initial terms in excess of one year, excluding the original issue discounts of $1.8 million as of September 30, 2013. The contractual obligation under long-term debt does not reflect any excess cash flow payments we may be required to make pursuant to our senior secured credit facilities.

(5) Amounts represent capital lease obligations with initial terms in excess of one year.

As a normal part of our business, depending on market conditions, pricing and our overall growth strategy, we continuously consider opportunities to enter into contracts for building additional ships. We may also consider the sale of ships or the purchase of existing ships. We continuously consider potential acquisitions and strategic alliances. If any of these were to occur, they would be financed through the incurrence of additional indebtedness, the issuance of additional capital contributions, or through cash flows from operations.

Off-Balance Sheet Arrangements

~~None~~We are not party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments or variable interest entities that either have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

3934

~~Table~~Item of3. ~~Contents~~Quantitative and Qualitative Disclosures About Market Risk

~~Debt~~We ~~Covenants~~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. For a discussion of our hedging strategies on market risks see discussions below and Note 4. "Derivative Instruments, Hedging Activities and Fair Value Measurements" in the accompanying notes to the consolidated financial statements.

~~Our~~Interest ~~credit~~Rate agreements contain a number of covenants that impose operating and financial restrictions, including requirements that we maintain a maximum loan-to-value ratio, a minimum interest coverage ratio (applicable only to our revolving credit facility) and restrictions on our and our subsidiaries’ ability to, among other things, incur additional indebtedness, issue preferred stock, pay dividends on or make distributions with respect to our capital stock, restrict certain transactions with affiliates, and sell certain key assets, principally our ships. As of September 30, 2013, we are in compliance with all financial covenants.Risk

40Our exposure to market risk for changes in interest rates relates to our long-term debt obligations including future interest payments. We have used interest rate swap agreements to modify our exposure to interest rate fluctuations and to manage our interest expense. There were no outstanding interest rate swap agreements as of June 30, 2014.

~~Table~~Foreign ofCurrency ~~Contents~~Exchange Risk

~~Item~~Our 3exposure to foreign currency exchange rate risk relates to our Euro denominated installment payments related to our newbuild ship contract, vessel drydock and other operational expenses. ~~Quantitative~~ We have entered into foreign currency swaps and ~~Qualitative~~collars ~~Disclosures~~to ~~About~~limit ~~Market~~the ~~Risk~~exposure to movements in the foreign currency exchange rates.

WeDuring ~~are~~August ~~exposed~~2013, towe ~~market~~entered ~~risks~~into ~~attributable~~a toforeign ~~changes~~currency incollar ~~fuel~~option ~~prices,~~with ~~foreign~~an ~~currency~~aggregate ~~exchange~~notional ~~rates~~amount ~~and~~€274.4 ~~interest~~million ~~rates~~($375.7 Wemillion ~~manage~~at ~~these~~June 30, ~~risks~~2014) ~~through~~to alimit ~~combination of~~ our ~~normal~~exposure ~~operating~~to ~~and~~foreign ~~financing~~currency ~~activities~~exchange ~~and~~rates ~~through~~for ~~the~~Euro ~~use~~denominated ofpayments ~~derivative~~related ~~financial~~to ~~instruments~~the ~~pursuant~~ship toconstruction ~~our~~contract ~~hedging~~for ~~practices~~Seven ~~and~~Seas ~~policies~~Explorer. ~~For~~The anotional ~~discussion~~amount of ~~our~~the ~~hedging~~collar ~~strategies~~represents on80% ~~market~~of ~~risks~~the ~~see~~construction ~~Note~~contract 4,of ~~Derivative~~the ~~Instruments,~~vessel ~~Hedging~~due ~~Activities~~at ~~and~~delivery. ~~Fair~~This ~~Value~~foreign ~~Measurements~~currency incollar ~~the~~option ~~accompanying~~was ~~notes~~designated toas ~~consolidated~~a ~~financial~~cash ~~statements~~flow ~~and~~hedge ~~Item~~at ~~7A,~~the ~~Quantitative~~inception of the instrument and ~~Qualitative~~will ~~Disclosures~~mature ~~About~~June ~~Market~~2016. ~~Risk~~The inestimated ~~our~~fair ~~Annual~~value ~~Report~~of onthe ~~Form~~foreign ~~10-K~~currency ~~(333-178244)~~collar ~~filed~~option ~~with~~at ~~the~~June 30, ~~SEC~~2014 onwas ~~March~~approximately 8,$1.3 ~~2013~~million.

Fuel Price Risk

Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our vessels. Fuel expense, as a percentage of our total revenues, was approximately 7.25% for the six months ended June 30, 2014 and 78.71% for the ~~nine~~six months ended ~~September~~June 30, 2013 ~~and 2012, respectively~~. We use fuel derivative swap agreements to mitigate the financial impact of fluctuations in fuel prices. At June 30, 2014, we had fuel swap agreements to pay fixed prices for fuel with an aggregate notional amount of approximately $19.9 million, maturing through 2015. These agreements hedge approximately 129,000 barrels, or 69%, of our estimated remaining fuel consumption for 2014 and 97,800 barrels, or 26%, of our estimated 2015 fuel consumption. 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. The estimated fair value of these contracts at June 30, 2014 was approximately $0.6 million.

AsItem ~~of September 30, 2013, we have fuel derivative swap agreements with an aggregate notional amount of approximately $22~~4.5 ~~million~~Controls ~~maturing through December 2015. These agreements hedge approximately 75%, 42%~~ and ~~10% of our estimated fuel consumption remaining in 2013, 2014 and 2015, respectively. The estimated fair value of these contracts at September 30, 2013 was approximately $0.8 million.~~ Procedures

Foreign Currency Exchange Rate Risk

Our exposure to foreign currency exchange rate risk relates to our euro-denominated ship construction contract, ship drydocks and other operational expenses. We enter into foreign currency forward contracts and collar options to limit the exposure to movements in the foreign currency exchange rates related to these risks. The majority of our operational foreign currency forward contracts do not qualify for hedge accounting; therefore, the changes in the fair value of these foreign currency derivatives are recorded in other income (expense) in the accompanying consolidated statements of income and comprehensive income. As of September 30, 2013 and December 31, 2012, we had no outstanding operational foreign currency forward contracts related to drydock or other operational expenses.

During the third quarter of 2013, we entered into a foreign currency collar option with an aggregate notional amount of €274.4 million ($365.8 million as of September 30, 2013), to hedge a portion of our foreign currency exposure related to the construction contract for Seven Seas Explorer. This foreign currency collar option was designated as a cash flow hedge at the inception of the instrument and will mature in June 2016. The change in fair value of the effective portion of the derivative was recorded as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~ June 30, ~~2013~~2014. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~U.S. Securities and Exchange Commission~~SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures and have concluded, as of September 30, 2013, that all were effective.35

Management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures and have concluded, as of June 30, 2014, that all were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

42PART II. OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes to the factors disclosed in "Item 1A. Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2013. We caution the reader that the risk factors discussed in "Item 1A. Risk Factors" in our 2013 Annual Report on Form 10-K, and those described elsewhere in this report or other filings with the Securities and Exchange Commission, could cause future results to differ materially from those stated in any forward-looking statements.



Item 6. Exhibits

INDEX TO EXHIBITS
		Incorporated by Reference			Filed/Furnished Herewith
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date	Filed/Furnished Herewith
10.1	Amended and Restated Executive Employment Agreement between Oceania Cruises, Inc., Prestige Cruises International, Inc. and Frank J. Del Rio, dated June 5, 2014.	8-K	10.1	June 10, 2014

Rule 13a-14(a)/15d-14(a) Certifications
31.1	Certification of Chief Executive Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.				X
31.2	Certification of Chief Financial Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.				X
Section 1350 Certifications
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. **				X
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. **				X

XBRL Documents
101.INS	XBRL Instance Document *				X
101.SCH	XBRL Taxonomy Schema *				X
101.CAL	XBRL Taxonomy Calculation Linkbase *				X
101.DEF	XBRL Taxonomy Definition Linkbase *				X
101.LAB	XBRL Taxonomy Label Linkbasev *				X
101.PRE	XBRL Taxonomy Presentation Linkbase *				X

* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

** Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing.

Table of Contents

Item 6. Exhibits.

INDEX TO EXHIBITS
Exhibit Number		Incorporated by Reference			Filed/Furnished Herewith
	Exhibit Description	Form	Exhibit	Filing Date
10.1	Newbuild Contract - Seven Seas Explorer *				X
10.2	Financing Contract - Seven Seas Explorer *				X
Rule 13a-14(a)/15d-14(a) Certifications
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
Section 1350 Certifications
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
XBRL Documents
101.INS	XBRL Instance Document				X
101.SCH	XBRL Taxonomy Schema				X
101.CAL	XBRL Taxonomy Calculation Linkbase				X
101.DEF	XBRL Taxonomy Definition Linkbase				X
101.LAB	XBRL Taxonomy Label Linkbase				X
101.PRE	XBRL Taxonomy Presentation Linkbase				X

* - Confidential treatment has been requested for portions of this exhibit. These portions have been omitted from this Quarterly Report and have been filed separately with the Securities and Exchange Commission.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Seven~~Date: ~~Seas~~August ~~Cruises~~12, ~~S. DE R.L.~~ 2014

Seven Seas Cruises S. DE R.L. (Registrant) /s/ Jason M. Montague Jason M. Montague, Executive Vice President and Chief Financial Officer

~~Date: November 8, 2013 /s/ FRANK J. DEL RIO~~38

Frank J. Del Rio, Chairman and Chief Executive Officer

Date: November 8, 2013 /s/ JASON M. MONTAGUE

Jason M. Montague, Executive Vice President and Chief Financial Officer

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Filing Compare · Seven Seas Cruises S. DE R.L.