Exhibit 99.1 

Index to Consolidated Financial Statements

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Stockholders’ of

Prestige Cruises International, Inc. and Subsidiaries

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit) and cash flows present fairly, in all material respects, the financial position of Prestige Cruises International, Inc. and Subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our, opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP

Miami, Florida 

March 24, 2014 

Prestige Cruises International, Inc. and Subsidiaries

Consolidated Balance Sheets  

(in thousands, except number of shares and par value)

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

Prestige Cruises International, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except shares and per share data)

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

Prestige Cruises International, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

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

Prestige Cruises International, Inc. and Subsidiaries   

Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands)

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

Prestige Cruises International, Inc. and Subsidiaries   

Consolidated Statements of Cash Flows

(in thousands)

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

Notes to Consolidated Financial Statements

Note 1.   General

In these consolidated financial statements, Prestige Cruises International, Inc. and its subsidiaries are collectively referred to as “PCI,” “we,” or “our.”

Description of Business

The accompanying consolidated financial statements include the accounts of Prestige Cruises International, Inc. (“PCI”) and its wholly owned subsidiaries, Prestige Cruise Holdings, Inc. (“PCH”), Oceania Cruises, Inc. and subsidiaries (“OCI”), and Seven Seas Cruises S. DE R.L. and subsidiaries (“SSC”), which operate cruise ships with destinations to Scandinavia, Russia, Alaska, the Caribbean, Panama Canal, South America, Europe, the Mediterranean, the Greek Isles, Africa, India, Asia, Canada and New England, Tahiti and the South Pacific, Australia and New Zealand. We are controlled by funds affiliated with Apollo Global Management, LLC (“Apollo”).

Basis for Preparation of Consolidated Financial Statements

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation.

2008 Reorganization

PCI was incorporated in Panama on January 30, 2008 as the new holding company of our business. Prior to the incorporation of PCI, PCH, which was incorporated on June 12, 2002, was the holding company for our business. On January 31, 2008, PCI entered into a transaction that resulted in the shareholders of PCH exchanging their preferred and common stock in PCH for PCI promissory notes, warrants, and common stock, as well as contributing funds of $529 million in exchange for common stock and promissory notes (“2008 Reorganization”). The contribution received from the shareholders was used by PCI to acquire common stock in PCH, and as a result, PCI became the owner of all the common stock of PCH. The funds contributed to PCH were used to acquire SSC in 2008.

Note 2.   Summary of Significant Accounting Policies

Accounting Policies

We follow accounting standards established by the Financial Accounting Standards Board (“FASB”) in our reporting of financial condition, results of operations, and cash flows. References to GAAP in these footnotes are to the FASB Accounting Standards Codification, sometimes referred to as the Codification or ASC.

Use of Estimates

The preparation of the consolidated financial statements requires management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, accrued liabilities, intangible assets, goodwill, warrants, derivatives, and stock-based compensation. Actual results could differ from those estimates.

Cash Equivalents

We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Restricted Cash

As of December 31, 2013 and 2012, restricted cash was $43.4 million and $63.7 million, respectively, of which $30.8 million is included in current assets in 2013, and $12.6 million and $63.7 million is classified within other long-term assets in 2013 and 2012, respectively. The current portion of $30.8 million in 2013 consisted of $30.0 million of cash collateral for letters of credit issued for the OCI newbuild financing agreements, which per our contract will be released within 24 months after delivery of the Riviera and $0.8 million related to agreements with our previous credit card service provider that required us to escrow a certain amount of passenger deposits. The $12.6 million of long term restricted cash in 2013 relate to certain credit card processing agreements. In 2012, the long term restricted cash balance consisted of $30.0 million of cash collateral for letters of credit issued for the OCI newbuild financing agreements and $33.7 million related to required collateral to secure obligations under the Federal Maritime Commission (“FMC”), certain credit card processing agreements and surety bonds for our sales office located in the United Kingdom.

As of December 31, 2013 and 2012, we had outstanding and undrawn letters of credit of $42.1 million and $50.0 million, respectively. These agreements are collateralized by the restricted cash as described above and automatically renew each year.

Trade and Other Receivables, net

As of December 31, 2013 and 2012, trade receivables totaled $14.5 million and $13.3 million, respectively, consisted of processed credit card transactions in transit of $7.4 million and $7.4 million, respectively, and onboard receivables from concessionaires, passengers and other trade receivables of $7.1 million and $5.9 million, respectively. As of December 31, 2013 and 2012, the allowance for bad debt, which is netted against trade receivables in the consolidated balance sheets, totaled $0.6 million and $0.2 million, respectively.

As of December 31, 2013 and 2012, other receivables totaled $1.8 million and $2.6 million, respectively. The 2013 balance consisted of insurance receivables. The 2012 balance consisted primarily of insurance receivables and warranty claims related to ship repairs made on the Regatta and on the Marina.

Inventories

Inventories consist of hotel consumables, medical supplies, deck and engine supplies and fuel and oil onboard the vessels and are carried at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method.

Property and Equipment

As of January 1, 2013, we changed our estimate for all our ships’ projected residual values. The estimate was reassessed due to recent sales and resale information for upscale cruise ships that we obtained during the first quarter of 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 10% and 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 income for the year ended December 31, 2013 is approximately $16.4 million of reduced depreciation expense. We periodically review and evaluate these estimates and judgments based on historical experiences and new factors and circumstances. As part our ongoing reviews, our estimates may change in the future. If such a change is necessary, depreciation expense could be materially higher or lower.

Property and equipment are stated at cost less accumulated depreciation. Improvement costs that add value to our ships are capitalized as additions to the ship and depreciated over the lesser of the ships’ remaining service lives or the improvements’ estimated useful lives. The remaining estimated cost and accumulated depreciation (i.e. book value) of replaced or refurbished ship components are written off and any resulting losses are recognized in the consolidated statements of operations.

Depreciation of the ships is computed net of projected residual values of 30% using the straight-line method over their original estimated weighted average lives. Depreciation of property and equipment not associated with the ships is computed using the straight-line method over their estimated useful lives of 3 to 5 years. Leasehold improvements are depreciated using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Improvement costs that add value to the ships and have a useful life greater than one year are capitalized as additions to the ships and depreciated over the lesser of the ships’ remaining service lives or the improvements’ estimated life. Spare parts for the ships are classified as property and equipment in the consolidated balance sheets. Property under capital lease is initially recorded at the lower of the present value of minimum lease payments or fair value. Depreciation expense attributed to property under capital leases is included within depreciation and amortization expense in the consolidated statements of operations.

Drydock costs are scheduled maintenance activities that require the ships to be taken out of service and are expensed as incurred. Drydocks are required to maintain each vessel’s Class certification and are necessary for our ships to be flagged in a specific country, obtain liability insurance and legally operate as passenger cruise ships. Typical drydock costs include drydock fees and wharfage services provided by the drydock facility, hull inspection and certification related activities, external hull cleaning and painting below the waterline including pressure cleaning and scraping, additional below the waterline work such as maintenance and repairs on propellers and replacement of seals, cleaning and maintenance on holding tanks and sanitary discharge systems, related outside contractor services including travel and related expenses and freight and logistics costs related to drydock activities. Repair and maintenance activities are charged to expense as incurred.

Debt Issuance Costs

Debt issuance costs, primarily loan origination and related fees, are deferred and amortized over the term of the related debt. During 2013 and 2012, we recorded $8.3 million and $30.5 million in debt issuance costs. Debt issuance costs related to ships under construction are not amortized until there is a drawdown on the newbuild debt facility, which coincides with the delivery of the new ship. During 2013, we also recorded $11.2 million of debt issuance costs related to the Seven Seas Explorer newbuild scheduled for delivery in 2016. Drawdowns on newbuild debt facilities occurred in January 2011 for the Marina and in April 2012 for the Riviera, in conjunction with the delivery of each new ship.

During 2013, we wrote off $4.2 million in previously recorded deferred financing costs in connection with the refinancing of the SSC first lien credit facility and OCI first and second lien credit facilities. During 2012, in connection with the refinancing of SSC first lien credit facilities, we wrote off $4.4 million in previously recorded deferred financing costs. Approximately $6.1 million of previously recorded deferred financing costs were written off in 2011 in connection with the repayment of the outstanding SSC second lien term loan. These costs are included within other income (expense) in the consolidated statements of operations. See “Note 5—Debt,” in accompanying notes to consolidated financial statements.

Deferred debt issuance costs are amortized to income using the effective interest method and are included net of amortization within other current assets and other long-term assets in the accompanying consolidated balance sheets. Amortization expenses related to the deferred debt issuance costs amounted to $12.6 million, $12.7 million and $10.1 million for the years ended December 31, 2013, 2012 and 2011, respectively, and are included in interest expense, net of capitalized interest, in the consolidated statements of operations.

Goodwill

We record goodwill as the excess of the purchase price over the estimated fair value of net assets acquired, including identifiable intangible assets. Goodwill associated with the purchase of SSC is attributable to numerous factors including providing us with entry into the luxury cruise line business with a developed workforce who had knowledge in the luxury cruise business, a fully developed travel agent distribution network, positive past passenger experiences and a developed business plan with proven performance. We assess goodwill for impairment at the “reporting unit level” (“Reporting Unit”) at least annually and more frequently when events or circumstances dictate. We have determined that there is only one Reporting Unit.

The impairment review for goodwill allows us to first assess qualitative factors to determine whether it is necessary to perform the more detailed two-step quantitative goodwill impairment test. We would perform the two-step test if our qualitative assessment determined it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount. We may also elect to bypass the qualitative assessment and proceed directly to step one of the quantitative test. The impairment review for goodwill consists of a two-step process of first determining the estimated fair value of the Reporting Unit and comparing it to the carrying value of the net assets allocated to the Reporting Unit. If the estimated fair value of the Reporting Unit exceeds the carrying value, no further analysis or write-down of goodwill is required. If the estimated fair value of the Reporting Unit is less than the carrying value of its net assets, the implied fair value of the Reporting Unit is allocated to all its underlying assets and liabilities, including both recognized and unrecognized intangible assets, based on their fair value. If necessary, goodwill is then written down to its implied fair value.

Identifiable Intangible Assets

SSC acquired certain intangible assets of which value has been assigned to them based on our estimates. Intangible assets that have an indefinite life are not amortized, but are subject to an annual impairment test, or more frequently, when events or circumstances change.

The impairment review for intangible assets also allows us to first assess qualitative factors to determine whether it is necessary to perform a more detailed quantitative intangible assets impairment test. We would perform the quantitative test if our qualitative assessment determined it was more-likely-than-not that the intangible assets are impaired. We may also elect to bypass the qualitative assessment and proceed directly to the quantitative test. The indefinite-life intangible asset quantitative impairment test consists of a comparison of the fair value of the indefinite-life intangible asset with its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying amount, the indefinite-life intangible asset is not considered impaired.

Other intangible assets assigned finite useful lives are amortized on a straight-line basis over their estimated useful lives or based on the assets pattern of cash flows. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on market and operational factors.

Derivative and Hedging Activities

We enter into various hedge contracts to manage and limit our exposure to fluctuations in foreign currency exchange rates, interest rates and fuel prices. We record our derivatives as assets and liabilities and recognize these hedges at estimated fair market value. If the derivative does not qualify as a hedge under these guidelines or is not designated as a hedge, changes in the fair market value of the derivative are recognized in other income (expense) in the consolidated statements of operations.

We designate at inception those derivatives which qualify for hedge accounting. The derivative instruments that hedge the variability of cash flows related to forecast transactions are designated as cash flow hedges. For these derivatives, the effective portion of the changes in the fair market value of the hedges are recognized as a component of accumulated other comprehensive income (loss) in the stockholders’ equity section of the consolidated balance sheets and are subsequently reclassified into the same line item as the forecast transaction when the hedge is settled. Any ineffective portion of the changes in the fair market value of the hedge are recognized as a component of other income (expense) in the consolidated statements of operations.

Cash flows for the hedging instruments are classified in the same category as the cash flow from the hedged items. If for any reason hedge accounting is discontinued, then any cash flow subsequent to the date of discontinuance will be classified consistent with the nature of the instrument. To qualify for hedge accounting, the hedging relationship between the hedging instruments and hedged items must be highly effective over a period of time in achieving the offset of changes in cash flows attributable to the hedged risk at the inception date. On an ongoing basis, we assess whether the derivative used in the hedging transactions is highly effective in offsetting changes in cash flow of the hedged item. If it is determined that a derivative is no longer highly effective as a hedge, the changes in fair value of the derivative are recognized in earnings immediately and reported in other income (expense) in the consolidated statements of operations.

We review our contracts and agreements on a regular basis to determine if embedded derivatives are included in the host contract. Embedded derivatives that meet the criteria for bifurcation are measured at fair value at inception and remeasured each reporting period. The changes in fair value are recognized in earnings and recorded in other income (expense) in the consolidated statements of operations.

Warrants

We account for our warrants in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), which requires detachable warrants to be classified as permanent equity, temporary equity, or as assets or liabilities. In general, warrants that either require net-cash settlement or are presumed to require net-cash settlement are recorded as assets and liabilities at fair value and warrants that require settlement in shares are recorded as equity instruments. All of our warrants require settlement in shares and are accounted for as permanent equity. The warrants are recorded at fair value on the issuance date. The fair value of the warrants is determined using a Black-Scholes option pricing model, and is affected by changes in inputs to that model including our stock price, expected stock price, volatility, and contractual term.

Revenue and Expense Recognition

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.

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. Concessionary fees are recognized based on the contractual terms of the various concession agreements. Also included are gross revenues from pre- and post-cruise hotel accommodations, shore excursions, land packages, and related ground transportation.

Certain of our sales include free unlimited shore excursions (“FUSE”) or a free hotel stay or free land package, which have no revenues attributable to them. The costs for FUSE, free hotel stays and free land packages are included in commissions, transportation and other expenses in the consolidated statements of operations.

Charter revenue consists of charter hire fees, net of commissions, to bareboat charter our ship Insignia, to an unrelated party for a period of two years commencing on April 9, 2012. The charter agreement constitutes an operating lease and charter revenue is recognized on a straight-line basis over the charter term.

Cash collected in advance for future cruises is recorded as passenger deposit liabilities. Deposits for sailings traveling more than 12 months in the future are classified as long-term liabilities and included in other long-term liabilities in the consolidated balance sheets. We recognize the revenue associated with these cash collections in the period the sailing occurs. For cruises that occur over multiple periods, the revenue is prorated and recognized ratably in each period based on the overall length of the cruise. Cancellation fee revenues, along with associated commission expenses and travel insurance, if any, are recognized at the time the cancellation occurs when it is both earned and realized.

Other ship operating expense includes port, deck and engine, certain entertainment-related expenses, and hotel consumable expenses. Other expense consists primarily of drydock and ship insurance costs.

During 2012, we incurred costs related to unplanned repairs on two of our ships. In connection with these incidents, approximately $1.1 million of insurance recoveries were netted against related costs recorded in other ship operating expense in the consolidated statements of operations. There were no revenues in 2012 related to these incidents as the losses exceeded the insurance recoverable.

Advertising Costs

Advertising costs are expensed as incurred and included in selling and administrative expense in the consolidated statements of operations. Advertising expense totaled $67.0 million, $55.2 million and $58.2 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount to estimated undiscounted future cash flows expected to be generated. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount exceeds its fair value. During 2013 and 2012, there were no impairment charges recorded on our long-lived assets.

We believe our estimates and judgments with respect to our ships are reasonable. However, should certain factors or circumstances cause us to revise our estimates of ship service lives, projected residual value or the lives of major improvements, depreciation expense could be materially higher or lower. If circumstances cause us to change our assumptions in making determinations as to whether ship improvements should be capitalized, the amount we expense each year as repair and maintenance cost could increase, partially offset by a decrease in depreciation expense.

Income Taxes

We use the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Foreign Currency Transactions

Foreign currency transaction gains and losses are recognized upon settlement of foreign currency transactions within other income (expense) in the consolidated statements of operations. In addition, for unsettled foreign currency transactions, gains and losses are recognized for changes between the transaction exchange rates and month-end exchange rates. We recorded net foreign currency transaction losses of $0.3 million, $3.6 million and $0.6 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Stock-Based Employee Compensation

Stock-based compensation expense is measured and recognized at fair value of employee stock option awards. We recognize compensation expense for all share-based compensation awards using the fair value method. Compensation expense for awards is recognized over the awards’ vesting periods.

For liability classified awards we re-measure the fair value of the options at each reporting period until the award is settled. We also estimate the amount of expected forfeitures when calculating compensation cost. If the actual forfeitures that occur are significantly different from the estimate, then we revise our estimates.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The estimated fair value of stock options, less estimated forfeitures, is amortized over the vesting period using the graded-vesting method. The expected volatility is based on a combination of historical volatility for peer companies. The risk-free interest rate is based on U.S. Treasury securities with a remaining term equal to the expected option’s life assumed at the date of grant. The expected term is based on the average of contractual life, vested period of the options, and expected employee exercise behavior. The estimated forfeiture rate represents an estimate which will be revised in subsequent periods if actual forfeitures differ from those estimates.

Earnings Per Share

Basis earning per share is computed by dividing net income by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares and common stock equivalents outstanding during each period.

Segment Reporting

We operate two cruise brands, Oceania Cruises and Regent Seven Seas Cruises which are considered two operating segments. The operating segments have been aggregated as a single reportable segment based on the similarity of their economic characteristics as well as similar qualitative factors such as types of customers, regulatory environment, and products and services provided.

Foreign revenues for our cruise brands represent sales generated from outside the U.S. primarily by foreign tour operators and foreign travel agencies. Substantially all of our long-lived assets are located outside of the U.S. and consist principally of our ships.

Passenger ticket revenues for the year ended December 31, which are based on where the reservation originates, were as follows:

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, we use our best 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. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recoveries, it is possible that certain matters may be resolved for amounts materially different from any provisions or disclosures that we have previously made.

Reclassifications

Certain amounts in prior years have been reclassified to conform to current year’s presentation.

New Accounting Pronouncements

As of January 1, 2013, we adopted Financial Accounting Standards Board ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. It requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. In 2013, this pronouncement was enhanced by ASU 2013-1, Balance Sheet Offsetting. 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 “Note 9—Stockholders’ Equity” in the accompanying notes to the consolidated financial statements.

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.

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 condition.

Note 3.   Property and Equipment, Net

Property and equipment consists of the following:

(in thousands)

For the year ended December 31, 2013, there were approximately $56.4 million of capitalized additions including a progress payment for the Seven Seas Explorer newbuild of $22.0 million and ship improvements and refurbishments completed on the existing fleet. During 2012, there was approximately $30.8 million of capital additions including ship improvements and refurbishments completed on the existing fleet. For the years ended December 31, 2013, 2012, and 2011, approximately $0.1 million, $0.8 million (net of insurance reimbursements of $0.2 million) and $1.2 million, respectively, of property and equipment, net, were written-off as disposals. We capitalized interest costs of $0.7 million, $1.2 million and $2.8 million during 2013, 2012 and 2011, respectively.

In 2012, the delivery of the Riviera was delayed. In accordance with our contract, we received liquidating damages of $8.1 million. Of the monies received, $7.8 million was recorded as a reduction of the basis of the ship as there was no identifiable benefit in exchange for the payment. The remainder of the payment was used to reduce actual expenses incurred as a result of the delay.

Depreciation and amortization expense on assets in service amounted to $79.2 million, $88.3 million and $75.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. Repair and maintenance expenses, excluding drydock expenses, were $26.9 million, $24.7 million and $20.6 million for the years ended December 31, 2013, 2012 and 2011, respectively and are recorded in other ship operating expenses in the consolidated statements of operations. Drydock expenses, recorded within other cruise operating expenses in the consolidated statements of operations, were $5.1 million, $6.8 million and $12.0 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Note 4.   Goodwill and Identifiable Intangible Assets

Goodwill

In 2013 and 2012, we completed our annual goodwill impairment test and determined there was no impairment. We performed our annual impairment testing as of September 30^th. We elected not to perform a qualitative assessment and instead performed the two-step quantitative goodwill impairment test. Based on the discounted cash flow model, we determined that the fair value of the reporting unit exceeded the carrying value and is therefore not impaired. The principal assumptions used in our cash flow model related to forecasting future operating results, includes discount rate, net revenue yields, net cruise costs including fuel prices, capacity changes, weighted-average cost of capital for comparable publicly-traded companies and terminal values, which are all considered level 3 inputs.

The estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require significant judgments when making assumptions of expected revenues, operating costs, selling and administrative expenses, capital expenditures, as well as assumptions regarding the cruise vacation industry competition and business conditions, among other factors. It is reasonably possible that changes in our assumptions and projected operating results above could lead to impairment of our goodwill. There were no triggering events that occurred between our impairment testing date and reporting date.

Identifiable Intangible Assets

In 2008, we recorded identifiable intangible assets consisting of trade names and customer relationships. The trade names acquired in this transaction, “Seven Seas Cruises” and “Luxury Goes Exploring,” were determined to have indefinite lives.

In 2011, we amended our agreement with Regent Hospitality Worldwide, which granted us exclusive and perpetual licensing rights to use the “Regent” trade name and trademarks (“Regent licensing rights”) in conjunction with cruises, subject to the terms and conditions stated in the agreement. The original 10 year license agreement to use the “Regent” trade name and trademarks was originally accounted for as an operating lease and is exclusive from the acquired trade names of “Seven Seas Cruises” and “Luxury Goes Exploring.”

The Regent licensing rights required an immediate payment of $5.1 million and deferred payments of $4.0 million over 2 years. The immediate payment of $5.1 million included payment for accrued royalty fees under the previous agreement. The payment was applied first to the liability for previously owed royalty fees with the remainder applied to the intangible asset and legal fees for $4.5 million. The $4.0 million deferred payments have been recorded net of a discount of $0.6 million relating to the present value of the deferred payments associated with the amended license agreement and were being accreted through February 2013. The resulting $7.9 million intangible asset is being amortized over an estimated useful life of 40 years. The amendment and subsequent capitalization of the Regent licensing rights had no impact on the acquired trade names as part of the Regent Seven Seas Transaction, as both transactions were separate and unrelated. The outstanding balance of $2.0 million was paid in February 2013. The liability was recorded in accrued expenses in the accompanying consolidated balance sheets.

On January 2013, the former President of SSC stepped down from his role and became a consultant to us. We entered into a separation agreement and an independent contractor agreement (“Agreements”) with the former President of SSC. Severance of $0.7 million was paid for the year ended December 31, 2012, pursuant to his then-existing employment agreement. The Agreements have terms of 24 months and have been treated as an intangible asset. At inception, the non-compete clause within the Agreements 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.

Our identifiable intangible assets, except the trade names acquired in the purchase of SSC, are subject to amortization over their estimated lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on market factors and operational considerations. Identifiable intangible assets not subject to amortization, such as trade names, are reviewed for impairment whenever events or circumstances indicate, but at least annually, by comparing the estimated fair value of the intangible asset with its carrying value.

We elected not to perform a qualitative assessment and instead performed the annual quantitative impairment test of our trade names as of September 30^th using the relief-from-royalty method. 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 derive the fair value at September 30^th. The discount rate used was the same rate used in our goodwill impairment test. Based on the discounted cash flow model, we determined the fair value of our trade names exceeded their carrying value and are therefore not impaired. 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 our trade name.

As of December 31, 2013 and 2012, the net balance of identifiable intangible assets was $81.3 million and $83.6 million, respectively. The following tables provide information on the gross carrying amounts, accumulated amortization, and net balances of these identifiable intangible assets as of December 31, 2013 and 2012.

(in thousands)

(in thousands)

Intangible amortization expense for the years ended December 31, 2013, 2012 and 2011 was $2.8 million, $2.6 million and $2.5 million, respectively. The following table provides information about the future estimated amortization expense over the next five years for the identifiable intangible assets:

(in thousands)

Note 5.   Debt

Long-term bank debt and senior secured notes consist of the following:

(in thousands)

OCI First Lien Term Loan

In March 2011, OCI’s first lien term loan credit agreement was amended. After the amendment, $34.6 million of the outstanding principal balance was due to mature in April 2013 at a rate of LIBOR plus a margin of 2.25% and $231.7 million of the outstanding principal balance was due to mature in April 2015 at a rate of LIBOR plus a margin of 4.75%. The amendment was treated as a modification in accordance with the guidance in ASC 470: Debt, as the terms of the term loan were substantially the same before and after the amendment. Prior existing debt issuance costs and the new debt issuance costs associated with the amendment are being amortized over the life of the new term loan. The next scheduled principal payment for each of the term loans is at maturity.

In December 2012, the outstanding term loan principal balance of $34.6 million maturing in April 2013 was repaid. As such, OCI wrote off the entire loan balance and the associated deferred financing costs of $0.1 million, net of accumulated amortization of $0.7 million.

During July 2013, OCI repaid its outstanding $231.7 million first lien term loan and $75.0 million second lien term loan, as amended in connection with OCI first lien credit facility as discussed below.

OCI Second Lien Term Loan

In October 2012, OCI’s second lien term loan credit agreement was amended. Of the $75.0 million outstanding principal loan balance due to mature in April 2014, $70.2 million was extended 12 months, to mature in April 2015, at an increased rate of LIBOR plus a margin of 8.75%. The terms governing the remaining outstanding portion of the second lien term loan in the amount of $4.8 million did not change. The amendment was treated as a modification in accordance with the guidance in ASC 470: Debt, as the terms of the term loan were substantially the same before and after the amendment. Prior existing debt issuance costs and the new debt issuance costs were amortized over the life of the new term loan. During July 2013, OCI repaid its outstanding $75.0 million second lien term loan, as amended, in connection with the financing of the OCI first lien credit facility.

OCI First Lien Credit Facility

During July 2013, OCI entered into a new $375.0 million first lien credit facility consisting of a $300.0 million first lien term loan, which has a rate of LIBOR, with a floor of 1%, plus a margin of 5.75% and includes an original issue discount of 1% maturing July 2020. The first lien credit facility term loan requires quarterly payments of principal equal to 0.25% of the original principal amount of the term loan beginning in December 2013, with the remaining unpaid amount due and payable at maturity. Borrowings under the first lien term loan are prepayable in whole or in part at any time without penalty, but are subject to a prepayment premium in the event of a refinancing of the term loan within twelve months of the closing date. This transaction also included a new revolving credit facility of $75.0 million replacing OCI’s previous revolving credit facility of $35.0 million. We applied ASC 470-50 Debt—Modifications and Extinguishments to this transaction. After evaluating the criteria as applicable to syndicated loans, the refinancing resulted in both an extinguishment of debt for certain creditors whose balances were entirely re-paid, and a debt modification for certain creditors whose terms were not substantially different before and after the amendment. The new fees paid and previously existing deferred financing costs were proportionally allocated between modification and extinguishment. Of the $5.4 million in fees, $4.7 million were capitalized and are being amortized over the remaining term of the new debt. New fees and previously existing deferred financing costs allocated to the extinguishment were included in the calculation of loss on early extinguishment of debt, which resulted in a loss of $1.9 million and was recorded within other income (expense) in the consolidated statement of operations for the year ended December 31, 2013.

OCI Revolving Credit Facility

OCI’s revolving credit facility of $75.0 million has a rate of LIBOR with a floor of 1%, plus a margin of 5.75% and matures in July 2018. OCI is required to pay a quarterly commitment fee of up to 0.5% on the aggregate unused and uncanceled commitments under the revolving credit facility.

At December 31, 2013 and 2012, the total undrawn amount available under the OCI revolving credit facility was $75.0 million and $35.0 million, respectively.

OCI Newbuild Financing

On April 27, 2012, OCI took delivery of Riviera and financed $539.0 million. This loan facility included funds to cover 80% of the construction contract of the ship, the settlement of the related euro foreign currency hedges and the balance of the export credit agency fee. The newbuild loan facility is 95% guaranteed to the lenders by Servizi Assicurativi del Commercio Estero (“SACE”), the official export credit agency of Italy. OCI is required to make 24 semi-annual principal payments on the loan commencing six months subsequent to the draw-down date of April 27, 2012. The loan facility is based on six-month LIBOR plus a margin of 0.55%. However, if a market disruption event occurs as defined by the lenders, the floating interest rate can be amended to include an adjusted spread. As of December 31, 2013 the all-in interest rate, which did not include an adjusted spread, was 0.91%. The annual effective interest rate was 3.03%. In December 2012, OCI prepaid $44.9 million for the principal payments due in April and October 2013. The outstanding balance as of December 31, 2013, and 2012 totaled $471.6 million. Associated with the Riviera newbuild loan facility, PCI issued a $15.0 million letter of credit in 2012, which was issued for the benefit of the lenders and automatically renews each year. PCH guarantees this financing arrangement.

During 2012, the floating interest rate on the Riviera newbuild loan facility was amended to include an adjusted spread calculation that references the USD/EUR basis swap index and the IBOXX Euro Average, which is capped at 1%. In accordance with ASC 815-15-20, Derivatives and Hedging (“ASC 15”) we evaluated the characteristics of the adjusted spread and determined that it met the criteria of an embedded derivative as defined by the codification. We determined that this embedded derivative feature required bifurcation from its host contract in accordance with ASC 815. At inception, the bifurcation of the embedded derivative from the loan agreement resulted in a discount to the face value of the loan agreement of approximately $17.5 million, which is being amortized to interest expense over the life of the loan agreement under the effective interest method.

During October 2013 the lenders notified us that the market disruption event no longer existed and the adjusted spread would cease to apply as of the next interest period rate reset, on October 27, 2013. The fair value of the Riviera newbuild loan facility embedded derivative as of December 31, 2013 is $0.0 million as we estimate that the adjusted spread will no longer be activated for the remainder of the loan agreement. Debt discount accretion was $2.3 million and $1.7 million for the year ended December 31, 2013 and 2012, respectively.

On January 19, 2011, OCI took delivery of Marina and financed $535.7 million. Similar to the newbuild loan facility in place for Riviera, this loan facility included funds to cover 80% of the construction contract of the ship, the settlement of the related euro foreign currency hedges and the balance of the export credit agency fee. The newbuild loan facility is 95% guaranteed to the lenders by SACE. OCI is required to make 24 semi-annual principal payments on the loan commencing six months subsequent to the draw-down date of January 19, 2011. The loan facility is based on six-month LIBOR plus a margin of 0.55%. However, if a market disruption event occurs as defined by the lenders, the floating interest rate can be amended to include an adjusted spread. As of December 31, 2013 the all-in interest rate, including an adjusted spread, was 1.10%. The annual effective interest rate was 3.30%. In December 2012, OCI prepaid $22.3 million for the principal payment due in January 2013. The outstanding balance as of December 31, 2013 and 2012 totaled $424.1 million and $446.4 million, respectively. Associated with our Marina newbuild loan facility, PCI issued a $15.0 million letter of credit in 2011, which was issued for the benefit of the lenders and automatically renews each year. PCH guarantees this financing arrangement.

During 2012, the floating interest rate on the Marina newbuild loan facility was amended to include an adjusted spread calculation that references the USD/EUR basis swap index and the IBOXX Euro Average and is capped at 1%. In accordance with ASC 815, we evaluated the characteristics of the adjusted spread and determined that it met the criteria of an embedded derivative as defined by the codification. We determined that this embedded derivative feature required bifurcation from its host contract in accordance with ASC 815. At inception, the bifurcation of the embedded derivative from the loan agreement resulted in a discount to the face value of the loan agreement of approximately $16.6 million, which is being amortized to interest expense over the life of the loan agreement under the effective interest method.

During October 2013, the lenders notified us that the market disruption event no longer existed and the adjusted spread would no longer be required effective at the next scheduled interest rate reset on January 19, 2014. The fair value of the Marina newbuild loan facility embedded derivative as of December 31, 2013 is approximately $34,000. Debt discount accretion was $2.5 million for the years ended December 31, 2013 and 2012.

SSC First Lien Credit Facility

In August 2012, SSC terminated its previously existing $465.0 million credit facility, consisting of both a $425.0 million term loan and a $40.0 million revolving credit facility, with a syndicate of financial institutions. SSC repaid the outstanding term loan balance of $293.5 million, accrued interest of $1.0 million and third party fees of $0.1 million. SSC also wrote off approximately $4.4 million of previously recorded deferred financing costs associated with the terminated credit facility. The repayment of the debt met the liability derecognition criteria in ASC Topic 405, Extinguishment of Liabilities, and as such, a loss of $4.5 million on early extinguishment of debt was recorded and is included in other income (expense) in our consolidated statements of operations and within operating activities in our consolidated statements of cash flows.

Concurrent with the termination of the first lien credit facility, SSC entered into a $340.0 million credit agreement consisting of a $300.0 million term loan and a $40.0 million revolving credit facility with a unrelated syndicate of financial institutions. Borrowings under the term loan and revolving credit facility bear interest at LIBOR with a floor of 1.25%, and an applicable margin of either 4.75% or 5.0% based on the Total Senior Secured Bank Leverage Ratio (as defined in the credit agreement). The margin was 5.0%. The term loan requires quarterly payments of principal equal to $0.75 million beginning in December 2012, with the remaining unpaid amount due and payable at maturity. Borrowings under the term loan are repayable in whole or in part at any time without penalty, but are subject to a prepayment premium in the event of a refinancing of the term loan within twelve months. The term loan matures on December 21, 2018, at which time all outstanding amounts under the term loan will be due and payable. In addition, SSC

is required to pay a quarterly commitment fee of either 0.375% or 0.5%, based on a loan-to-value ratio, upon the aggregate unused and uncanceled commitments under the revolving credit facility. The current commitment fee is 0.5%. The revolving credit facility matures on August 21, 2017, at which time all outstanding amounts under the revolving credit facility will be due and payable. The proceeds from the credit agreement were used to repay the first lien term loan, as discussed above.

The $340.0 million credit agreement included an original issue debt discount of $3.0 million. This amount is recorded as a reduction to the gross debt and is being accreted over the agreement term using the effective interest method. We have presented the debt, net of the original debt discount in our consolidated balance sheets. The discount is not considered an asset separable from the debt and we have allocated the discount between current and long-term debt. Additionally, SSC recorded $6.8 million in debt issuance costs. Deferred debt issuance costs are amortized to income using the effective interest method and are included net of amortization within other current assets and other assets in the accompanying consolidated balance sheets.

In February 2013, SSC amended its previously existing $340.0 million credit agreement, consisting of a $300.0 million term loan and $40.0 million revolving credit facility. Interest on SSC’s 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. Borrowings under the amended term loan are prepayable in whole or in part at any time without penalty, but are subject to a prepayment premium in the event of a refinancing of the term loan within twelve months of the amendment. SSC 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.

SSC applied ASC 470-50 Debt—Modifications and Extinguishments to this transaction. After evaluating the criteria as applicable to syndicated loans, the repricing resulted in an extinguishment of debt for certain creditors whose balances were entirely repaid. This repricing resulted in a debt modification for certain creditors whose terms were not substantially different before and after the amendment. The new fees paid and previously existing deferred financing costs were proportionally allocated between modification and extinguishment. Of the $4.5 million in fees, $3.1 million of the amendment fees were capitalized and are being amortized over the remaining term of the debt. New fees, previously existing deferred financing costs and debt discount of $1.2 million, $1.7 million and $0.8 million, respectively, allocated to the extinguishment were included in the calculation of gain or loss on early extinguishment of debt, which resulted in a loss of $3.7 million and was recorded within other income (expense) in the consolidated statement of operations for the year ended December 31, 2013.

As of December 31, 2013 and 2012, the total undrawn amount available under the SSC revolving credit facility was $40.0 million.

SSC Senior Secured Notes

In May 2011, SSC issued $225.0 million of senior secured notes (the “Notes”) at a rate of 9.125% through a private placement with registration rights. The Notes are due on May 15, 2019, with interest payments due semi-annually beginning in November 2011. The net proceeds from the Notes after the initial purchasers’ discount and estimated fees and expenses of $7.4 million, were approximately $217.6 million. SSC used $140.7 million of the proceeds from the offering to repay the second lien term loan, $29.0 million to pay down its first lien term loan and the remainder as unrestricted cash. SSC registered the Notes with the SEC in May 2012. SSC has the ability to redeem the Notes prior to the due date.

SSC Newbuild Financing

Effective July 2013, SSC entered into a definitive contract with Italy’s Fincantieri shipyard to build a luxury cruise ship to be named the Seven Seas Explorer. Under the terms of the contract, SSC will pay €343.0 million or approximately $471.3 million (calculated on the applicable exchange rate at December 31, 2013) to Fincantieri for the new vessel. During July 2013, SSC made a payment of approximately $22.0 million to Fincantieri for the initial installment payment for Seven Seas Explorer.

In July 2013, SSC entered into a loan agreement providing for borrowings of up to approximately $440.0 million with a syndicate of financial institutions to finance 80% of the construction contract of Seven Seas Explorer, the settlement of related euro foreign currency hedges and the export credit agency fee. The twelve year fully amortizing loan requires semi-annual principal and interest payments commencing six months following the draw-down date. Borrowings under this loan agreement will bear interest, at our election, at either (i) a fixed rate of 3.43% per year, or (ii) six month LIBOR plus a margin 2.8% per year. SSC is required to pay various fees to the lenders under this loan agreement, including a commitment fee of 1.1% per year on the undrawn maximum loan amount payable semi-annually. Guarantees under this loan agreement are provided by SSC and PCH. The newbuild loan facility is 95% guaranteed to the lenders by Servizi Assicurativi del Commercio Estero (“SACE”), the official export credit agency of Italy. As of December 31, 2013, the total undrawn amount available under the loan agreement was approximately $440.0 million.

Debt Covenants

Our First Lien Credit Facilities 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 facilities, if drawn) 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 common stock, restrict certain transactions with affiliates, and sell certain key assets, principally our ships.

The newbuild loan facilities, as amended, contain financial covenants, including requirements that OCI and SSC maintain a minimum liquidity balance, that PCH as guarantor maintains a maximum total debt to EBITDA ratio, a minimum EBITDA to debt service ratio and a maximum total debt to adjusted equity ratio, on the last day of the calendar year. EBITDA, as defined in the loan agreement, includes certain adjustments for purposes of calculating the ratio. As of December 31, 2013, we are in compliance with all financial covenants.

The following schedule represents the annual maturities of third-party long-term debt (in thousands):

Interest expense on third-party debt, including interest rate swaps, was $70.4 million (net of capitalized interest of $0.7 million), $65.9 million (net of capitalized interest of $1.2 million) and $46.3 million (net of capitalized interest of $2.8 million) for the years ended December 31, 2013, 2012 and 2011, respectively. 

Note 6.   Related Party Notes Payable and Warrants

Initial Issuance

In connection with the 2008 Reorganization, we issued eleven promissory notes to Apollo totaling $512.4 million. The promissory notes are subordinate to all third-party non-trading debt. Eight of the promissory notes for a total of $325.0 million (“5% Notes”) bear interest at a rate of 5% per annum, cumulative, compounding semi-annually. The principal and interest are due upon note maturity. The other three promissory notes for a total of $187.4 million are non-interest bearing. The eleven promissory notes mature at the earlier of a qualified public offering, the sale of PCI, or on the 10^th anniversary of the issue date of the promissory note.

Also in 2008, PCI granted 8.1 million warrants to Apollo to purchase common stock bearing a 5% payment-in-kind (“PIK”) dividend rate per annum with dividends being cumulative, compounding semi-annually, and payable in additional warrants (“5% Dividend”). An additional 4.7 million non-dividend paying warrants were also granted to Apollo on January 31, 2008. All warrants granted on January 31, 2008 have an exercise price of $40.02355, are immediately exercisable, and expire at the earlier of a qualified public offering, the sale of PCI, or on the 10^th anniversary of the issue date of the warrant agreement.

The warrants have been accounted for as equity, as an increase to additional paid in capital, in accordance with ASC 480 Distinguishing Liabilities from Equity. As there were multiple classes of instruments (promissory notes, warrants, and common stock) issued during 2008, the proceeds were allocated to each type of instrument at the investor level based on the relative fair values on the issuance date in accordance with ASC 470 resulting in a discount to the promissory notes.

The value assigned at inception to the promissory notes, warrants, and common stock was $408.1 million, $215.4 million, and $234.7 million, respectively. The discount to the face value of the note was approximately $116.5 million, which is being amortized to interest expense over the ten-year period of the promissory note under the effective interest method. The annual effective interest rates range from 4.19% to 6.75%.

2010 and 2009 Issuances

During 2010 and 2009, we issued promissory notes totaling approximately $83.6 million and $99.2 million, which all occurred in conjunction with grants of 5% Dividend warrants to purchase common stock. Each issuance in 2010 and 2009 contain the same terms. The promissory notes are subordinate to all third-party non-trading debt and bear interest at a rate of 5% per annum, cumulative, compounding semi-annually. The principal and interest are due upon note maturity; there is no interest cancellation feature on these promissory notes. The promissory notes mature at the earlier of a qualified public offering, the sale of PCI or on the 10^th anniversary of the effective date of the promissory note. All warrants issued in 2010 and 2009 have an exercise price of $9.25, are immediately exercisable and expire at the earlier of a qualified public offering, the sale of PCI or on the 10^th anniversary of the effective date of the warrant agreement.

The warrants have been accounted for as equity in accordance with ASC 480 and the proceeds were allocated to promissory notes and warrants based on their relative fair values on the issuance date in accordance with ASC 470. The value assigned to each respective warrant issuance was initially recorded as a discount to the face value of the corresponding note with an offsetting increase to additional paid in capital. The debt discounts are being amortized to interest expense over the ten-year period of the promissory notes under the effective interest method. The annual effective interest rates range from 12.15% to 15.30% in 2013, 2012 and 2011. There were no issuances of promissory notes or warrants during 2013, 2012, 2011.

Related party notes payable, including accrued interest, consist of the following:

(in thousands)

The annual maturities of related party notes payable are due beginning in 2017 and through 2020.

Interest expense on related party notes was $32.5 million, $30.9 million and $29.4 million for the years ended December 31, 2013, 2012 and 2011, respectively, and has been added to long-term related party notes payable in the accompanying consolidated balance sheets. Debt discount accretion of $17.8 million, $15.3 million and $13.0 million for the years ended December 31, 2013, 2012 and 2011, respectively, is included in interest expense, net in the consolidated statements of operations.

Note 7.   Derivative Instruments, Hedging Activities and Fair Value Measurements

We are exposed to market risks attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We manage these risks through a combination of our normal operating and financing activities and through the use of derivative financial instruments pursuant to our hedging practices and policies as described below. The financial impacts of these hedging instruments are primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the amount, term and conditions of the derivative instrument with the underlying risk being hedged. We do not hold or issue derivative financial instruments for trading or other speculative purposes. We monitor our derivative positions using techniques including market valuations and sensitivity analyses.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates to our long-term debt obligations including future interest payments. We use interest rate swap agreements to modify our exposure to interest rate fluctuations and to manage our interest expense.

In July 2011, OCI entered into three forward starting interest rate swap agreements to hedge the variability of the interest payments related to the outstanding variable rate debt associated with the Marina newbuild financing. The first swap, with an amortizing notional amount of $450.0 million at inception, was effective beginning January 19, 2012 and matured on January 19, 2013. The second swap, with an amortizing notional amount of $405.4 million became effective on January 19, 2013 and matured on January 19, 2014. The third swap, with an amortizing notional amount of $360.8 million became effective January 19, 2014 and matures on January 19, 2015. All three interest rate swaps are designated as cash-flow hedges and qualify for hedge accounting treatment. The changes in fair value of the effective portion of the interest rate swaps are recorded as a component of accumulated other comprehensive income (loss) on our consolidated balance sheets.

In March 2013, OCI entered into three forward starting interest rate swap agreement to hedge the variability of the interest payments related to the variable rate debt associated with the Marina and Riviera newbuild loan facility. The Marina interest rate swap, with an amortizing notional amount of $300.0 million at inception, becomes effective January 20, 2015 and matured on January 19, 2016. The first Riviera interest rate swap, with an amortizing notional amount of $422.4 million at inception, became effective on October 28, 2013 and matures on October 27, 2014. The second Riviera interest rate swap, with an amortizing notional amount of $377.6 million at inception becomes effective October 27, 2014 and matures on October 27, 2015.

All OCI interest rate swaps are designated as cash-flow hedges and meet the requirements to qualify for hedge accounting treatment. The changes in fair value of the effective portion of the interest rate swaps are recorded as a component of accumulated other comprehensive income (loss) on our consolidated balance sheets. The total notional amount of interest rate swap agreements for OCI effective and outstanding as of December 31, 2013 and 2012 was $805.5 million and $427.7 million, respectively. There was no ineffectiveness recorded for the year ended December 31, 2013 and 2012.

During 2008, SSC entered into an interest rate swap agreement with a notional amount of $400.0 million to limit the interest rate exposure related to its long-term debt. This interest rate swap, which matured on February 14, 2011, was designated as a cash flow hedge and the change in fair value of the effective portion of the interest rate swap was recorded as a component of accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. SSC had no interest rate swaps outstanding as of December 31, 2013 and 2012.

Foreign Currency Exchange Risk

Our exposure to market risk for changes in foreign currency exchange rates relates to our Euro-denominated payments related to our newbuild ship contract, vessel drydock and other operational expenses denominated in currencies other than the U.S. dollar.

During August 2013, SSC entered into a foreign currency collar option with an aggregate notional amount €274.4 million ($377.1 million at December 31, 2013) to limit the exposure to foreign currency exchange rates for Euro denominated payments related to the ship construction contract for the 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 estimated fair value of the foreign currency effective portion of the derivative was recorded as a component of accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. There was no ineffectiveness recorded as of December 31, 2013. Ineffective portions of the future changes in fair value of the instrument will be recognized in other income (expense) in the statement of operations.

During 2012, we entered into foreign currency swaps with an aggregate notional amount of €2.8 million ($3.6 million as of December 31, 2012) to limit the exposure to foreign currency exchange rates for Euro denominated payments related to vessel drydock and other operational expenses. The foreign currency swaps do not qualify for hedge accounting; therefore, the changes in fair values of these foreign currency derivatives are recorded in other income (expense) in the accompanying consolidated statements of operations. There were no outstanding foreign currency swap agreements as of December 31, 2012.

Fuel Price Risk

Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our vessels. We use fuel derivative swap agreements to mitigate the financial impact of fluctuations in fuel prices. The fuel swaps do not qualify for hedge accounting; therefore, the changes in fair value of these instruments are recorded in other income (expense) in the accompanying consolidated statements of operations.

As of December 31, 2013 and 2012, we entered into the following fuel swap agreements: