UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | |||
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2020 |
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Revenue |
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Passenger ticket | $ | | $ | | $ | | $ | | ||||
Onboard and other |
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Total revenue |
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Cruise operating expense |
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Commissions, transportation and other |
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Onboard and other |
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Payroll and related |
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Fuel |
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Food |
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Other |
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Total cruise operating expense |
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Other operating expense |
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Marketing, general and administrative |
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Depreciation and amortization |
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Impairment loss | — | — | | — | ||||||||
Total other operating expense |
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Operating income (loss) |
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Non-operating income (expense) |
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Interest expense, net |
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Other income (expense), net |
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Total non-operating income (expense) |
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Net income (loss) before income taxes |
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Income tax benefit (expense) |
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Net income (loss) | $ | ( | $ | | $ | ( | $ | | ||||
Weighted-average shares outstanding |
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Basic |
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Diluted |
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Earnings (loss) per share |
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Basic | $ | ( | $ | | $ | ( | $ | | ||||
Diluted | $ | ( | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
3
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
Net income (loss) | $ | ( | $ | | $ | ( | $ | | ||||
Other comprehensive income (loss): |
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Shipboard Retirement Plan |
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Cash flow hedges: |
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Net unrealized gain (loss) |
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Amount realized and reclassified into earnings |
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Total other comprehensive income (loss) |
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Total comprehensive income (loss) | $ | ( | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
4
Norwegian Cruise Line Holdings Ltd.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
June 30, | December 31, | |||||
| 2020 |
| 2019 | |||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
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Inventories |
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Prepaid expenses and other assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Tradenames |
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Other long-term assets |
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Total assets | $ | | $ | | ||
Liabilities and shareholders’ equity |
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Current liabilities: |
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Current portion of long-term debt | $ | | $ | | ||
Accounts payable |
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Accrued expenses and other liabilities |
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Advance ticket sales |
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Total current liabilities |
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Long-term debt |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 11) |
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Shareholders’ equity: |
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Ordinary shares, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Retained earnings |
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Treasury shares ( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
5
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended | ||||||
June 30, | ||||||
| 2020 |
| 2019 | |||
Cash flows from operating activities |
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Net income (loss) | $ | ( | $ | | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization expense |
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Impairment loss | | — | ||||
Deferred income taxes, net |
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Loss on derivatives | | — | ||||
Loss on extinguishment of debt |
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Provision for bad debts and inventory obsolescence |
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Gain on involuntary conversion of assets | ( | ( | ||||
Share-based compensation expense |
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Net foreign currency adjustments |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued expenses and other liabilities |
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Advance ticket sales |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities |
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Additions to property and equipment, net |
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Cash received on settlement of derivatives |
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Cash paid on settlement of derivatives | ( | — | ||||
Other | | | ||||
Net cash used in investing activities |
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Cash flows from financing activities |
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Repayments of long-term debt |
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Proceeds from long-term debt |
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Common share issuance proceeds, net | | — | ||||
Proceeds from employee related plans |
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Net share settlement of restricted share units |
| ( |
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Purchases of treasury shares |
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Early redemption premium |
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Deferred financing fees |
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Net cash provided by (used in) financing activities |
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Effect of exchange rates on cash and cash equivalents | ( | — | ||||
Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
6
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
(in thousands)
Three Months Ended June 30, 2020 | ||||||||||||||||||
Accumulated | ||||||||||||||||||
Additional | Other | Total | ||||||||||||||||
Ordinary | Paid-in | Comprehensive | Retained | Treasury | Shareholders’ | |||||||||||||
Shares |
| Capital |
| Income (Loss) |
| Earnings |
| Shares |
| Equity | ||||||||
Balance, March 31, 2020 |
| $ | | $ | | $ | ( | $ | | $ | ( | $ | | |||||
Share-based compensation |
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Common share issuance proceeds, net | | | — | — | — | | ||||||||||||
Net share settlement of restricted share units |
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Beneficial conversion feature | — | | — | — | — | | ||||||||||||
Other comprehensive income, net |
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Net loss |
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Balance, June 30, 2020 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Six Months Ended June 30, 2020 | ||||||||||||||||||
Accumulated | ||||||||||||||||||
Additional | Other | Total | ||||||||||||||||
Ordinary | Paid-in | Comprehensive | Retained | Treasury | Shareholders’ | |||||||||||||
| Shares |
| Capital |
| Income (Loss) |
| Earnings |
| Shares |
| Equity | |||||||
Balance, December 31, 2019 |
| $ | | $ | | $ | ( | $ | | $ | ( |
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Share-based compensation |
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Issuance of shares under employee related plans |
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Common share issuance proceeds, net | | | — | — | — | | ||||||||||||
Net share settlement of restricted share units |
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Beneficial conversion feature | — | | — | — | — | | ||||||||||||
Cumulative change in accounting policy | — | — | — | | — | | ||||||||||||
Other comprehensive loss, net |
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Net loss |
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Balance, June 30, 2020 | $ | | $ | | $ | ( | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
7
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Changes in Shareholders’ Equity - Continued
(Unaudited)
(in thousands)
Three Months Ended June 30, 2019 | ||||||||||||||||||
Accumulated |
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Additional | Other | Total | ||||||||||||||||
Ordinary | Paid-in | Comprehensive | Retained | Treasury | Shareholders’ | |||||||||||||
Shares |
| Capital |
| Income (Loss) |
| Earnings |
| Shares | Equity | |||||||||
Balance, March 31, 2019 |
| $ | |
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| $ | ( |
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Share-based compensation |
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Issuance of shares under employee related plans |
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Treasury shares | — | — | — | — | ( | ( | ||||||||||||
Net share settlement of restricted share units |
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Other comprehensive loss, net |
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Net income |
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Balance, June 30, 2019 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Six Months Ended June 30, 2019 | ||||||||||||||||||
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Additional | Other | Total | ||||||||||||||||
Ordinary | Paid-in | Comprehensive | Retained | Treasury | Shareholders’ | |||||||||||||
| Shares |
| Capital |
| Income (Loss) |
| Earnings |
| Shares | Equity | ||||||||
Balance, December 31, 2018 |
| $ | |
| $ | |
| $ | ( |
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Share-based compensation |
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Issuance of shares under employee related plans |
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Treasury shares | — | — | — | — | ( | ( | ||||||||||||
Net share settlement of restricted share units |
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Other comprehensive loss, net |
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Net income |
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Balance, June 30, 2019 | $ | | $ | | $ | ( | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
8
Norwegian Cruise Line Holdings Ltd.
Notes to Consolidated Financial Statements
(Unaudited)
Unless otherwise indicated or the context otherwise requires, references in this report to (i) the “Company,” “we,” “our” and “us” refer to NCLH (as defined below) and its subsidiaries (including Prestige (as defined below), except for periods prior to the consummation of the Acquisition of Prestige (as defined below)), (ii) “NCLC” refers to NCL Corporation Ltd., (iii) “NCLH” refers to Norwegian Cruise Line Holdings Ltd., (iv) “Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and its predecessors, and (v) “Prestige” refers to Prestige Cruises International S. de R.L. (formerly Prestige Cruises International, Inc.), together with its consolidated subsidiaries, including Prestige Cruise Holdings S. de R.L. (formerly Prestige Cruise Holdings, Inc.), Prestige’s direct wholly-owned subsidiary, which in turn is the parent of Oceania Cruises S. de R.L. (formerly Oceania Cruises, Inc.) (“Oceania Cruises”) and Seven Seas Cruises S. de R.L. (“Regent”) (Oceania Cruises also refers to the brand by the same name and Regent also refers to the brand Regent Seven Seas Cruises).
References to the “U.S.” are to the United States of America, and “dollar(s)” or “$” are to U.S. dollars, the “U.K.” are to the United Kingdom and “euro(s)” or “€” are to the official currency of the Eurozone. We refer you to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Terminology” for the capitalized terms used and not otherwise defined throughout these notes to consolidated financial statements.
1. Description of Business and Organization
We are a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. As of June 30, 2020, we had
We have
2. Summary of Significant Accounting Policies
Liquidity and Management’s Plan
Due to the continued spread of COVID-19, growing travel restrictions and limited access to ports around the world, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across its three brands, which has subsequently been extended through October 31, 2020. On March 14, 2020, concurrent with our and the broader cruise industry’s original suspension, the U.S. Centers for Disease Control and Prevention (“CDC”) issued a No Sail Order through April 13, 2020, which was subsequently extended through July 24, 2020. On July 16, 2020, the CDC extended its No Sail Order until the earliest of (a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, (b) the date the Director of the CDC rescinds or modifies the No Sail Order based on specific public health or other considerations or (c) September 30, 2020. In addition, the duration of any voluntary suspensions we have implemented and the resumption of operations outside of the United States will be dependent, in part, on the severity and duration of the COVID-19 pandemic, the status of the CDC’s No Sail Order, the lifting of various travel restrictions and travel bans issued by various countries around the world, as well as the availability of ports around the world. Significant events affecting travel, including COVID-19, typically have an impact on the demand for cruise vacations, with the full extent of the impact generally determined by the length of time the event influences travel decisions. We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity, and such negative impact
9
may continue well beyond the containment of such an outbreak. Due to the unknown duration and extent of the COVID-19 pandemic, travel restrictions and advisories, the potential unavailability of ports and/or destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, the full effect on our financial performance and financial condition cannot be quantified at this time, but we expect to report a net loss for the year ending December 31, 2020.
Since March 2020, we have taken several actions to bolster our financial condition while our global cruise voyages are suspended. In March 2020, NCLC borrowed the full amount of $
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Based on the actions the Company has taken as described above and our resulting current resources, the Company has alleviated the substantial doubt previously disclosed and has sufficient liquidity to satisfy our obligations over the next
Basis of Presentation
The accompanying consolidated financial statements are unaudited and, in our opinion, contain all normal recurring adjustments necessary for a fair statement of the results for the periods presented.
Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months; however, demand for cruises during the summer months of 2020 has been materially adversely impacted by the COVID-19 pandemic. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019, which are included in our most recent Annual Report on Form 10-K filed with the SEC, as updated by our Current Report on Form 8-K filed on July 8, 2020.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to the current period presentation.
10
Earnings (Loss) Per Share
A reconciliation between basic and diluted earnings per share was as follows (in thousands, except share and per share data):
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
Net income (loss) | $ | ( | $ | | $ | ( | $ | | ||||
Basic weighted-average shares outstanding |
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Dilutive effect of share awards |
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Diluted weighted-average shares outstanding |
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Basic earnings (loss) per share | $ | ( | $ | | $ | ( | $ | | ||||
Diluted earnings (loss) per share | $ | ( | $ | | $ | ( | $ | |
For the three months ended June 30, 2020 and 2019, a total of
Foreign Currency
The majority of our transactions are settled in U.S. dollars. We remeasure assets and liabilities denominated in foreign currencies at exchange rates in effect at the balance sheet date. Gains or losses resulting from transactions denominated in other currencies are recognized in our consolidated statements of operations within other income, net. We recognized a loss of $
Depreciation and Amortization Expense
The amortization of deferred financing fees is included in depreciation and amortization expense in the consolidated statements of cash flows; however, for purposes of the consolidated statements of operations they are included in interest expense, net.
Recently Issued Accounting Guidance
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provided guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. We are currently evaluating the impact of ASU 2020-04 on our consolidated financial statements.
11
3. Revenue Recognition
Disaggregation of Revenue
Revenue and cash flows are affected by economic factors in various geographical regions. Revenues by destination were as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
North America | $ | | $ | | $ | | $ | | ||||
Europe |
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Asia-Pacific |
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South America | — | | | | ||||||||
Other |
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Total revenue | $ | | $ | | $ | | $ | |
North America includes the U.S., the Caribbean, Canada and Mexico. Europe includes the Baltic region, Canary Islands and Mediterranean. Asia-Pacific includes Australia, New Zealand and Asia. Other includes all other international territories.
Segment Reporting
We have concluded that our business has a single reportable segment. Each brand, Norwegian, Oceania Cruises and Regent, constitutes a business for which discrete financial information is available and management regularly reviews the brand level operating results and, therefore, each brand is considered an operating segment. Our operating segments have similar economic and qualitative characteristics, including similar long-term margins and similar products and services; therefore, we aggregate all of the operating segments into
Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to U.S.-sourced guests who make reservations in the U.S. Revenue attributable to U.S.-sourced guests has historically approximated
Contract Balances
Receivables from customers are included within accounts receivable, net. As of June 30, 2020 and December 31, 2019, our receivables from customers were $
Beginning in March 2020, our brands launched new cancellation policies to permit our guests to cancel cruises which are not part of the Company’s temporary suspension of voyages up to 48 hours or 15 days, depending on the brand, prior to embarkation and receive a refund in the form of a credit to be applied toward a future cruise. These programs are currently in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through specified time periods, depending on the brand. The future cruise credit is valid for any sailing through December 31, 2022, and we may extend this offer. The future cruise credits are not contracts, and therefore, guests who have elected this option are excluded from our contract liability balance; however, the credit for the original amount paid is included in advance ticket sales.
Our contract liabilities are included within advance ticket sales. As of June 30, 2020 and December 31, 2019, our contract liabilities were $
12
For cruise vacations that had been cancelled by us due to COVID-19, approximately $
4. Intangible Assets
We evaluate goodwill and tradenames for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable. In March 2020, the Company announced a voluntary suspension of all cruise voyages for its three brands, which has subsequently been extended through October 31, 2020. Due to the temporary suspension of operations and decline in our stock price, we performed interim goodwill and tradename impairment tests as of March 31, 2020. We refer you to Note 9 – “Fair Value Measurements and Derivatives” for information on our valuation assumptions.
The changes in the carrying amount of goodwill for each reporting unit for the six months ended June 30, 2020 are as follows (in thousands):
Reporting Unit | ||||||||||||
Norwegian | Regent | |||||||||||
Cruise | Oceania | Seven Seas | Total | |||||||||
Line |
| Cruises |
| Cruises |
| Goodwill | ||||||
Balance, December 31, 2019 |
| $ | | $ | | $ | | $ | | |||
Impairment loss |
| ( |
| ( |
| ( |
| ( | ||||
Balance, June 30, 2020 | $ | — | $ | — | $ | |