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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2021

OR

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

For the transition period from                      to                     

Commission File Number: 001-35784

NORWEGIAN CRUISE LINE HOLDINGS LTD.

(Exact name of registrant as specified in its charter)

Bermuda

    

98-0691007

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

7665 Corporate Center Drive, Miami, Florida 33126

33126

(Address of principal executive offices)

(zip code)

(305) 436-4000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Ordinary shares, par value $0.001 per share

 

NCLH

 

The New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

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

Large accelerated filer 

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

There were 370,033,061 ordinary shares outstanding as of October 31, 2021.

Table of Contents

TABLE OF CONTENTS

  

    

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 4.

Controls and Procedures

46

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

47

Item 1A.

Risk Factors

47

Item 6.

Exhibits

50

SIGNATURES

53

2

Table of Contents

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

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Revenue

 

  

 

  

 

  

 

  

Passenger ticket

$

86,127

$

4,667

$

87,877

$

859,293

Onboard and other

 

66,954

 

1,851

 

72,672

 

411,036

Total revenue

 

153,081

 

6,518

 

160,549

 

1,270,329

Cruise operating expense

 

  

 

  

 

  

 

  

Commissions, transportation and other

 

32,338

 

4,038

 

47,935

 

371,007

Onboard and other

 

19,306

 

4,728

 

21,841

 

82,889

Payroll and related

 

154,440

 

65,571

 

323,225

 

441,462

Fuel

 

79,238

 

48,224

 

175,931

 

222,240

Food

 

16,672

 

3,426

 

27,314

 

59,639

Other

 

137,762

 

64,170

 

294,092

 

308,832

Total cruise operating expense

 

439,756

 

190,157

 

890,338

 

1,486,069

Other operating expense

 

  

 

  

 

  

 

  

Marketing, general and administrative

 

229,142

 

156,656

 

617,820

 

558,781

Depreciation and amortization

 

173,289

 

177,488

 

517,867

 

554,937

Impairment loss

1,607,797

Total other operating expense

 

402,431

 

334,144

 

1,135,687

 

2,721,515

Operating loss

 

(689,106)

 

(517,783)

 

(1,865,476)

 

(2,937,255)

Non-operating income (expense)

 

 

 

 

Interest expense, net

 

(161,205)

 

(139,664)

 

(1,122,905)

 

(323,108)

Other income (expense), net

 

4,720

 

(23,680)

 

57,464

 

(32,275)

Total non-operating income (expense)

 

(156,485)

 

(163,344)

 

(1,065,441)

 

(355,383)

Net loss before income taxes

 

(845,591)

 

(681,127)

 

(2,930,917)

 

(3,292,638)

Income tax benefit (expense)

 

(294)

 

3,761

 

(2,949)

 

19,057

Net loss

$

(845,885)

$

(677,366)

$

(2,933,866)

$

(3,273,581)

Weighted-average shares outstanding

 

  

 

  

 

  

 

  

Basic

 

370,016,479

 

271,435,350

 

356,591,143

 

241,578,995

Diluted

 

370,016,479

 

271,435,350

 

356,591,143

 

241,578,995

Loss per share

 

  

 

  

 

  

 

  

Basic

$

(2.29)

$

(2.50)

$

(8.23)

$

(13.55)

Diluted

$

(2.29)

$

(2.50)

$

(8.23)

$

(13.55)

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

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Net loss

$

(845,885)

$

(677,366)

$

(2,933,866)

$

(3,273,581)

Other comprehensive income (loss):

 

  

 

  

 

  

 

  

Shipboard Retirement Plan

 

98

 

101

 

295

 

305

Cash flow hedges:

 

 

 

 

Net unrealized gain (loss)

 

(45,134)

 

87,710

 

(73,497)

 

(163,672)

Amount realized and reclassified into earnings

 

12,948

 

36,072

 

48,328

 

86,853

Total other comprehensive income (loss)

 

(32,088)

 

123,883

 

(24,874)

 

(76,514)

Total comprehensive loss

$

(877,973)

$

(553,483)

$

(2,958,740)

$

(3,350,095)

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

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Norwegian Cruise Line Holdings Ltd.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)

September 30, 

December 31, 

    

2021

    

2020

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

1,934,816

$

3,300,482

Accounts receivable, net

 

990,384

 

20,578

Inventories

 

108,177

 

82,381

Prepaid expenses and other assets

 

247,824

 

154,103

Total current assets

 

3,281,201

 

3,557,544

Property and equipment, net

 

13,480,120

 

13,411,226

Goodwill

 

98,134

 

98,134

Trade names

 

500,525

 

500,525

Other long-term assets

 

1,370,047

 

831,888

Total assets

$

18,730,027

$

18,399,317

Liabilities and shareholders’ equity

 

  

 

  

Current liabilities:

 

  

 

  

Current portion of long-term debt

$

543,739

$

124,885

Accounts payable

 

94,951

 

83,136

Accrued expenses and other liabilities

 

860,864

 

596,056

Advance ticket sales

 

1,440,294

 

1,109,826

Total current liabilities

 

2,939,848

 

1,913,903

Long-term debt

 

11,864,794

 

11,681,234

Other long-term liabilities

 

1,042,146

 

450,075

Total liabilities

 

15,846,788

 

14,045,212

Commitments and contingencies (Note 10)

 

  

 

  

Shareholders’ equity:

 

  

 

  

Ordinary shares, $0.001 par value; 980,000,000 shares authorized, 370,032,455 shares issued and outstanding at September 30, 2021 and 490,000,000 shares authorized, 315,636,032 shares issued and outstanding at December 31, 2020

 

370

 

316

Additional paid-in capital

 

6,371,545

 

4,889,355

Accumulated other comprehensive income (loss)

 

(264,991)

 

(240,117)

Retained earnings (deficit)

 

(3,223,685)

 

(295,449)

Total shareholders’ equity

 

2,883,239

 

4,354,105

Total liabilities and shareholders’ equity

$

18,730,027

$

18,399,317

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

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

Nine Months Ended

September 30, 

    

2021

    

2020

Cash flows from operating activities

 

  

 

  

Net loss

$

(2,933,866)

$

(3,273,581)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Depreciation and amortization expense

 

560,972

 

565,208

Impairment loss

1,607,797

Deferred income taxes, net

 

79

 

(17,852)

(Gain) loss on derivatives

(23,560)

12,195

Loss on extinguishment of debt

 

601,539

 

10,480

Provision for bad debts and inventory obsolescence

 

14,118

 

16,293

Gain on involuntary conversion of assets

(7,706)

(1,340)

Share-based compensation expense

 

88,974

 

81,009

Net foreign currency adjustments

 

(7,238)

 

3,746

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

 

(979,890)

 

(12,103)

Inventories

 

(26,676)

 

12,757

Prepaid expenses and other assets

 

(65,876)

 

79,915

Accounts payable

 

15,014

 

11,536

Accrued expenses and other liabilities

 

142,170

 

(180,126)

Advance ticket sales

 

469,595

 

(834,560)

Net cash used in operating activities

 

(2,152,351)

 

(1,918,626)

Cash flows from investing activities

 

  

 

  

Additions to property and equipment, net

 

(539,530)

 

(873,142)

Cash paid on settlement of derivatives

(14,465)

(31,520)

Other

11,024

3,047

Net cash used in investing activities

 

(542,971)

 

(901,615)

Cash flows from financing activities

 

  

 

  

Repayments of long-term debt

 

(889,206)

 

(888,800)

Proceeds from long-term debt

 

1,345,041

 

5,225,090

Common share issuance proceeds, net

1,558,396

719,094

Proceeds from employee related plans

 

3,141

 

5,557

Net share settlement of restricted share units

 

(16,672)

 

(15,334)

Early redemption premium

 

(611,164)

 

(1,376)

Deferred financing fees

 

(59,880)

 

(117,388)

Net cash provided by financing activities

 

1,329,656

 

4,926,843

Effect of exchange rates on cash and cash equivalents

(3,267)

Net increase (decrease) in cash and cash equivalents

 

(1,365,666)

 

2,103,335

Cash and cash equivalents at beginning of period

 

3,300,482

 

252,876

Cash and cash equivalents at end of period

$

1,934,816

$

2,356,211

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

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(in thousands)

Three Months Ended September 30, 2021

Accumulated 

Additional

Other

Retained

Total

Ordinary 

Paid-in 

Comprehensive

Earnings

Treasury

Shareholders’

Shares

    

Capital

    

Income (Loss)

    

(Deficit)

    

Shares

    

Equity

Balance, June 30, 2021

 

$

370

$

6,329,585

$

(232,903)

$

(2,377,800)

$

$

3,719,252

Share-based compensation

 

39,922

 

39,922

Issuance of shares under employee related plans

 

2,052

 

2,052

Net share settlement of restricted share units

 

(14)

 

(14)

Other comprehensive loss, net

 

(32,088)

 

(32,088)

Net loss

 

(845,885)

 

(845,885)

Balance, September 30, 2021

$

370

$

6,371,545

$

(264,991)

$

(3,223,685)

$

$

2,883,239

Nine Months Ended September 30, 2021

Accumulated 

Additional

Other

Retained

Total

Ordinary 

Paid-in 

Comprehensive

Earnings

Treasury

Shareholders’

    

Shares

    

Capital

    

Income (Loss)

    

(Deficit)

    

Shares

    

Equity

Balance, December 31, 2020

 

$

316

$

4,889,355

$

(240,117)

$

(295,449)

$

 

$

4,354,105

Share-based compensation

 

 

88,974

 

 

 

 

88,974

Issuance of shares under employee related plans

 

 

3,141

 

 

 

 

3,141

Common share issuance proceeds, net

54

1,558,342

1,558,396

Net share settlement of restricted share units

 

 

(16,672)

 

 

 

 

(16,672)

Cumulative change in accounting policy

(131,240)

5,630

(125,610)

Other

(20,355)

(20,355)

Other comprehensive loss, net

 

 

 

(24,874)

 

 

 

(24,874)

Net loss

 

 

 

 

(2,933,866)

 

 

(2,933,866)

Balance, September 30, 2021

$

370

$

6,371,545

$

(264,991)

$

(3,223,685)

$

$

2,883,239

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

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Changes in Shareholders’ Equity - Continued

(Unaudited)

(in thousands)

Three Months Ended September 30, 2020

Accumulated 

    

    

    

Additional

Other

Retained

Total

Ordinary 

Paid-in 

Comprehensive

Earnings

Treasury

Shareholders’

Shares

    

Capital

    

Income (Loss)

    

(Deficit)

    

Shares

Equity

Balance, June 30, 2020

 

$

281

$

4,851,781

$

(495,887)

$

1,234,776

$

(1,253,926)

$

4,337,025

Share-based compensation

 

 

25,862

 

 

 

 

25,862

Issuance of shares under employee related plans

 

 

1,457

 

1,457

Common share issuance proceeds, net

19

276,902

276,921

Net share settlement of restricted share units

 

 

(16)

 

 

 

 

(16)

Other comprehensive income, net

 

 

 

123,883

 

 

 

123,883

Net loss

 

(677,366)

 

(677,366)

Balance, September 30, 2020

$

300

$

5,155,986

$

(372,004)

$

557,410

$

(1,253,926)

$

4,087,766

Nine Months Ended September 30, 2020

    

Accumulated 

    

    

    

Additional

Other

Retained

Total

Ordinary 

Paid-in 

Comprehensive

Earnings

Treasury

Shareholders’

    

Shares

    

Capital

    

Income (Loss)

    

(Deficit)

    

Shares

Equity

Balance, December 31, 2019

 

$

237

$

4,235,690

$

(295,490)

$

3,829,068

$

(1,253,926)

 

$

6,515,579

Share-based compensation

 

 

81,009

 

 

 

 

81,009

Issuance of shares under employee related plans

 

2

 

5,555

 

 

 

 

5,557

Common share issuance proceeds, net

 

61

717,826

 

717,887

Net share settlement of restricted share units

 

 

(15,334)

 

 

 

 

(15,334)

Beneficial conversion feature

 

131,240

 

131,240

Cumulative change in accounting policy

1,923

1,923

Other comprehensive loss, net

 

 

(76,514)

 

 

(76,514)

Net loss

 

(3,273,581)

 

(3,273,581)

Balance, September 30, 2020

$

300

$

5,155,986

$

(372,004)

$

557,410

$

(1,253,926)

$

4,087,766

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

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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), (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 September 30, 2021, we had 28 ships with approximately 59,150 Berths and had orders for nine additional ships to be delivered through 2027. Due to the novel coronavirus (“COVID-19”), we temporarily suspended all global cruise voyages from March 2020 until July 2021, when we resumed cruise voyages on a limited basis. We refer you to Note 2 – “Summary of Significant Accounting Policies” for further information.

We have one Explorer Class Ship on order for delivery in 2023. We have two Allura Class Ships on order for delivery in 2023 and 2025. Project Leonardo will introduce an additional six ships with expected delivery dates from 2022 through 2027. These additions to our fleet will increase our total Berths to approximately 83,000, which includes additional Berths we plan to add to our Project Leonardo ships, subject to certain conditions. The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged.

2.   Summary of Significant Accounting Policies

Liquidity and Management’s Plan

Due to the impact of COVID-19, 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. As of the date hereof, 11 of our ships were operating with guests on board as part of our phased return to service. Significant events affecting travel, including COVID-19, typically have an impact on 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 may continue well beyond the containment of the pandemic.

In January 2021, we amended our Senior Secured Credit Facility to further defer certain amortization payments due prior to June 30, 2022 and to waive certain financial and other covenants through December 31, 2022. In February 2021, we amended certain of our export-credit backed facilities to further defer amortization payments through March 31, 2022, and we amended all of our export-credit backed facilities to suspend certain financial covenants through December 31, 2022. In connection with such amendments of our Senior Secured Credit Facility and our export-credit backed facilities, our minimum liquidity requirement was increased to $200 million and such requirement applies through December 31, 2022. In March 2021, the Company received additional financing through various debt financings and an equity offering,

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collectively totaling approximately $2.7 billion in gross proceeds. From the proceeds, approximately $1.5 billion was used to extinguish debt. In November 2021, the Company executed a $1 billion commitment through August 15, 2022 that provides additional liquidity to the Company. Refer to Note 7 – “Long-Term Debt” for further details of the above transactions.

In the third quarter of 2021, we began a phased relaunch of certain cruise voyages with our ships initially operating at reduced occupancy levels. The Company continues to execute on the phased relaunch plans for its 28-ship fleet. The Company expects to have approximately 75% of capacity operating by December 31, 2021 with the full fleet expected to be back in operation by April 1, 2022. The timing for bringing our ships back to service, the level of occupancy on our ships and the percentage of our fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, further resurgences and new more contagious and/or vaccine-resistant variants of COVID-19, the availability, distribution, rate of public acceptance and efficacy of vaccines and therapeutics for COVID-19, our ability to comply with governmental regulations, port availability, travel restrictions, bans and advisories, and our ability to re-staff our ships and implement new health and safety protocols.

The estimation of our future cash flow projections includes numerous assumptions that are subject to various risks and uncertainties. Our principal assumptions for future cash flow projections include:

Expected gradual phased return to service at reduced occupancy levels, increasing over time until we reach historical occupancy levels;
Forecasted cash collections primarily upon completion of future voyages and the payment of cash refunds for any further cancellations, in accordance with the terms of our credit card processing agreements (see Note 10 - “Commitments and Contingencies”); and
Expected incremental expenses for resumption of cruise voyages, including the maintenance of and compliance with additional health and safety protocols.

We cannot make assurances that our assumptions used to estimate our liquidity requirements will not change due to the unique and unpredictable nature of the pandemic, including its magnitude and duration. Accordingly, the full effect of the COVID-19 pandemic on our financial performance and financial condition cannot be quantified at this time. We have made reasonable estimates and judgments of the impact of COVID-19 within our financial statements and there may be material changes to those estimates in future periods. We will report a net loss for the three months and year ending December 31, 2021 and expect to report a net loss until we are able to resume regular voyages. We have taken actions to improve our liquidity, including completing various capital market transactions and making capital expenditure and operating expense reductions, and we expect to continue to pursue other opportunities to improve our liquidity and to refinance our debt to reduce interest expense and extend maturities.

Based on these actions and assumptions regarding the impact of COVID-19, and considering our available liquidity, including cash and cash equivalents of $1.9 billion as of September 30, 2021, we have concluded that we have sufficient liquidity to satisfy our obligations for at least the next twelve months.

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, our cruise voyages were completely suspended from March 2020 until July 2021 due to the COVID-19 pandemic and our resumption of cruise voyages will be phased in gradually as described under “—Liquidity and Management’s Plan” above. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020, which are included in our most recent Annual Report on Form 10-K filed with the SEC on February 26, 2021.

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Loss Per Share

A reconciliation between basic and diluted loss per share was as follows (in thousands, except share and per share data):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Net loss

$

(845,885)

$

(677,366)

$

(2,933,866)

$

(3,273,581)

Basic weighted-average shares outstanding

 

370,016,479

 

271,435,350

 

356,591,143

 

241,578,995

Dilutive effect of share awards

 

 

 

 

Diluted weighted-average shares outstanding

 

370,016,479

 

271,435,350

 

356,591,143

 

241,578,995

Basic loss per share

$

(2.29)

$

(2.50)

$

(8.23)

$

(13.55)

Diluted loss per share

$

(2.29)

$

(2.50)

$

(8.23)

$

(13.55)

For the three months ended September 30, 2021 and 2020, a total of 98.9 million and 124.0 million, respectively, and for the nine months ended September 30, 2021 and 2020, a total of 106.3 million and 63.4 million, respectively, shares have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive.

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 (expense), net. We recognized a gain of $9.9 million and a loss of $12.3 million for the three months ended September 30, 2021 and 2020, respectively, and a gain of $14.9 million and a loss of $2.6 million for the nine months ended September 30, 2021 and 2020, respectively, related to transactions denominated in other currencies.

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.

Accounts Receivable, Net

Accounts receivable, net includes $964.7 million due from credit card processors as of September 30, 2021, which is expected to be collected within the next 12 months. Prior to the resumption of cruise operations, these amounts were classified in other long-term assets as a result of the uncertainty surrounding the timing of their collection.

Recently Issued Accounting Guidance

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. As of September 30, 2021, we have not adopted any expedients and exceptions under ASU 2020-04. We will continue to evaluate the impact of ASU 2020-04 on our consolidated financial statements.

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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

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

North America

$

77,418

$

1,967

$

80,562

$

956,389

Europe

 

75,474

 

2,195

 

78,316

 

25,231

Asia-Pacific

 

74

 

362

 

1,061

 

151,283

South America

115

471

610

76,777

Other

 

 

1,523

 

 

60,649

Total revenue

$

153,081

$

6,518

$

160,549

$

1,270,329

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 one reportable segment.

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 75-85% of total revenue. No other individual country’s revenues exceed 10% in any given period.

Contract Balances

Receivables from customers are included within accounts receivable, net. As of September 30, 2021 and December 31, 2020, our receivables from customers were $7.8 million and $1.0 million, respectively.

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 15 days prior to departure. These programs were in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through October 31, 2021. Certain cruises booked for certain periods will be permitted a 60-day cancellation window for refunds. Future cruise credits that have been issued are 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 elected this option are excluded from our contract liability balance; however, the credit for the original amount paid is included in advance ticket sales or other long-term liabilities as applicable.

Our contract liabilities are included within advance ticket sales. As of September 30, 2021 and December 31, 2020, our contract liabilities were $234.0 million and $23.1 million, respectively. Of the amounts included within contract liabilities, approximately 25% were refundable in accordance with our cancellation policies. Of the deposits included within advance ticket sales, the vast majority are refundable in accordance with our cancellation policies and it is uncertain to what extent guests may request refunds. Refunds payable to guests are included in accounts payable. For the nine months ended September 30, 2021, no revenue recognized was included in the contract liability balance at the

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beginning of the period. The revenue recognized in the nine months ended September 30, 2020 that was included in contract liabilities as of the beginning of the period was $0.9 billion.

For cruise vacations that had been cancelled by us due to COVID-19, during the three months ended September 30, 2021 and 2020, approximately $0.9 million and $15.5 million, respectively, and during the nine months ended September 30, 2021 and 2020, approximately $26.9 million and $160.4 million, respectively, in costs to obtain these contracts, consisting of protected commissions, including those paid to employees, and credit card fees, were recognized in earnings.

4.   Leases

In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19. In this guidance, entities can elect not to apply lease modification accounting with respect to such lease concessions and instead, treat the concession as if it was a part of the existing contract. The Company has elected to not evaluate leases under the lease modification accounting framework for concessions that result from effects of the COVID-19 pandemic. In relation to our rights to use port facilities, we have elected the approach consistent with resolving a contingency, which allows us to remeasure the lease liability and recognize the amount of change in the lease liability as an adjustment to the carrying amount of the associated right-of-use asset. As the full amount of the concession will not be determinable until the force majeure period under the related arrangements have ended, periodic remeasurements will be required. During the contingency period, we are recognizing lease expense for these port facilities as incurred.

Lease balances were as follows (in thousands):

    

Balance Sheet location

    

September 30, 2021

 

December 31, 2020

Operating leases

 

  

 

  

  

Right-of-use assets

 

Other long-term assets

$

789,303

$

209,037

Current operating lease liabilities

 

Accrued expenses and other liabilities

37,109

17,700

Non-current operating lease liabilities

 

Other long-term liabilities

662,043

185,414