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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, 2023

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 425,424,934 ordinary shares outstanding as of October 31, 2023.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

40

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

41

Item 5.

Other Information

42

Item 6.

Exhibits

43

SIGNATURES

45

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, 

    

2023

    

2022

    

2023

    

2022

Revenue

 

  

 

  

 

  

 

  

Passenger ticket

$

1,733,594

$

1,105,908

$

4,420,909

$

2,242,255

Onboard and other

 

802,443

 

509,602

 

2,142,559

 

1,082,376

Total revenue

 

2,536,037

 

1,615,510

 

6,563,468

 

3,324,631

Cruise operating expense

 

  

 

  

 

  

 

  

Commissions, transportation and other

 

546,026

 

352,798

 

1,462,565

 

696,946

Onboard and other

 

188,694

 

126,740

 

470,271

 

255,445

Payroll and related

 

323,862

 

287,390

 

936,237

 

790,697

Fuel

 

170,893

 

186,984

 

530,003

 

503,682

Food

 

87,839

 

76,810

 

271,575

 

177,483

Other

 

165,432

 

208,176

 

476,123

 

623,374

Total cruise operating expense

 

1,482,746

 

1,238,898

 

4,146,774

 

3,047,627

Other operating expense

 

  

 

  

 

  

 

  

Marketing, general and administrative

 

325,365

 

375,291

 

1,013,600

 

1,000,578

Depreciation and amortization

 

204,608

 

186,551

 

596,513

 

547,214

Total other operating expense

 

529,973

 

561,842

 

1,610,113

 

1,547,792

Operating income (loss)

 

523,318

 

(185,230)

 

806,581

 

(1,270,788)

Non-operating income (expense)

 

 

 

 

Interest expense, net

 

(181,201)

 

(152,330)

 

(530,150)

 

(624,392)

Other income (expense), net

 

12,060

 

31,461

 

(4,938)

 

100,572

Total non-operating income (expense)

 

(169,141)

 

(120,869)

 

(535,088)

 

(523,820)

Net income (loss) before income taxes

 

354,177

 

(306,099)

 

271,493

 

(1,794,608)

Income tax benefit (expense)

 

(8,309)

 

10,705

 

1,170

 

7,179

Net income (loss)

$

345,868

$

(295,394)

$

272,663

$

(1,787,429)

Weighted-average shares outstanding

 

  

 

  

 

  

 

  

Basic

 

425,398,415

 

420,798,538

 

424,087,517

 

419,224,710

Diluted

 

511,585,445

 

420,798,538

 

460,819,375

 

419,224,710

Earnings (loss) per share

 

  

 

  

 

  

 

  

Basic

$

0.81

$

(0.70)

$

0.64

$

(4.26)

Diluted

$

0.71

$

(0.70)

$

0.62

$

(4.26)

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

3

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Net income (loss)

$

345,868

$

(295,394)

$

272,663

$

(1,787,429)

Other comprehensive income (loss):

 

  

 

  

 

  

 

  

Shipboard Retirement Plan

 

63

 

95

 

191

 

2,665

Cash flow hedges:

 

 

 

 

Net unrealized gain (loss)

 

57,885

 

(195,543)

 

34,833

 

(246,742)

Amount realized and reclassified into earnings

 

(6,563)

 

(31,762)

 

(13,890)

 

(75,339)

Total other comprehensive income (loss)

 

51,385

 

(227,210)

 

21,134

 

(319,416)

Total comprehensive income (loss)

$

397,253

$

(522,604)

$

293,797

$

(2,106,845)

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

4

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Norwegian Cruise Line Holdings Ltd.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)

September 30, 

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

681,558

$

946,987

Accounts receivable, net

 

239,416

 

326,272

Inventories

 

166,063

 

148,717

Prepaid expenses and other assets

 

524,259

 

450,893

Total current assets

 

1,611,296

 

1,872,869

Property and equipment, net

 

15,974,272

 

14,516,366

Goodwill

 

98,134

 

98,134

Trade names

 

500,525

 

500,525

Other long-term assets

 

1,067,597

 

1,569,800

Total assets

$

19,251,824

$

18,557,694

Liabilities and shareholders’ equity

 

  

 

  

Current liabilities:

 

  

 

  

Current portion of long-term debt

$

1,240,088

$

991,128

Accounts payable

 

158,414

 

228,742

Accrued expenses and other liabilities

 

1,038,578

 

1,318,460

Advance ticket sales

 

2,965,280

 

2,516,521

Total current liabilities

 

5,402,360

 

5,054,851

Long-term debt

 

12,634,609

 

12,630,402

Other long-term liabilities

 

776,167

 

803,850

Total liabilities

 

18,813,136

 

18,489,103

Commitments and contingencies (Note 10)

 

  

 

  

Shareholders’ equity:

 

  

 

  

Ordinary shares, $0.001 par value; 980,000,000 shares authorized; 425,424,934 shares issued and outstanding at September 30, 2023 and 421,413,565 shares issued and outstanding at December 31, 2022

 

425

 

421

Additional paid-in capital

 

7,687,860

 

7,611,564

Accumulated other comprehensive income (loss)

 

(455,945)

 

(477,079)

Accumulated deficit

 

(6,793,652)

 

(7,066,315)

Total shareholders’ equity

 

438,688

 

68,591

Total liabilities and shareholders’ equity

$

19,251,824

$

18,557,694

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, 

    

2023

    

2022

Cash flows from operating activities

 

  

 

  

Net income (loss)

$

272,663

$

(1,787,429)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

  

 

  

Depreciation and amortization expense

649,958

 

593,423

(Gain) loss on derivatives

9,338

(151)

Loss on extinguishment of debt

 

2,801

 

188,433

Provision for bad debts and inventory obsolescence

 

3,640

 

5,438

Gain on involuntary conversion of assets

(4,583)

(1,880)

Share-based compensation expense

 

96,254

 

88,923

Net foreign currency adjustments on euro-denominated debt

 

(2,027)

 

(17,672)

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

 

80,064

 

765,692

Inventories

 

(18,120)

 

(38,388)

Prepaid expenses and other assets

 

437,465

 

(555,561)

Accounts payable

 

(60,971)

 

(97,802)

Accrued expenses and other liabilities

 

(139,188)

 

116,947

Advance ticket sales

 

419,420

 

713,447

Net cash provided by (used in) operating activities

 

1,746,714

 

(26,580)

Cash flows from investing activities

 

  

 

  

Additions to property and equipment, net

 

(2,102,698)

 

(1,628,442)

Proceeds from maturities of short-term investments

240,000

Cash paid on settlement of derivatives

(118,610)

(214,035)

Other

14,678

10,991

Net cash used in investing activities

 

(2,206,630)

 

(1,591,486)

Cash flows from financing activities

 

  

 

  

Repayments of long-term debt

 

(2,629,681)

 

(1,465,439)

Proceeds from long-term debt

 

2,989,183

 

3,003,003

Proceeds from employee related plans

 

5,307

 

5,267

Net share settlement of restricted share units

 

(25,271)

 

(20,212)

Early redemption premium

 

 

(172,012)

Deferred financing fees

 

(145,051)

 

(52,474)

Net cash provided by financing activities

 

194,487

 

1,298,133

Net decrease in cash and cash equivalents

 

(265,429)

 

(319,933)

Cash and cash equivalents at beginning of period

 

946,987

 

1,506,647

Cash and cash equivalents at end of period

$

681,558

$

1,186,714

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, 2023

Accumulated 

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Accumulated

Shareholders’

Shares

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balance, June 30, 2023

 

$

425

$

7,661,646

$

(507,330)

$

(7,139,520)

$

15,221

Share-based compensation

 

23,563

23,563

Issuance of shares under employee related plans

 

2,689

2,689

Common share issuance for NCLC exchangeable notes

10

10

Net share settlement of restricted share units

 

(48)

(48)

Other comprehensive income, net

 

51,385

51,385

Net income

 

345,868

345,868

Balance, September 30, 2023

$

425

$

7,687,860

$

(455,945)

$

(6,793,652)

$

438,688

Nine Months Ended September 30, 2023

Accumulated 

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Accumulated

Shareholders’

    

Shares

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balance, December 31, 2022

 

$

421

$

7,611,564

$

(477,079)

$

(7,066,315)

$

68,591

Share-based compensation

 

 

96,254

 

 

 

96,254

Issuance of shares under employee related plans

 

4

 

5,303

 

 

 

5,307

Common share issuance for NCLC exchangeable notes

10

10

Net share settlement of restricted share units

 

 

(25,271)

 

 

 

(25,271)

Other comprehensive income, net

 

 

 

21,134

 

 

21,134

Net income

 

 

 

 

272,663

 

272,663

Balance, September 30, 2023

$

425

$

7,687,860

$

(455,945)

$

(6,793,652)

$

438,688

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, 2022

Accumulated 

    

    

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Accumulated

Shareholders’

Shares

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balance, June 30, 2022

 

$

419

$

7,567,129

$

(377,292)

$

(6,288,441)

$

901,815

Share-based compensation

 

 

26,083

 

 

 

26,083

Issuance of shares under employee related plans

 

2

 

2,708

2,710

Net share settlement of restricted share units

 

 

(8,221)

 

 

 

(8,221)

Other comprehensive loss, net

 

 

 

(227,210)

 

 

(227,210)

Net loss

 

(295,394)

(295,394)

Balance, September 30, 2022

$

421

$

7,587,699

$

(604,502)

$

(6,583,835)

$

399,783

Nine Months Ended September 30, 2022

    

Accumulated 

    

    

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Accumulated

Shareholders’

    

Shares

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balance, December 31, 2021

 

$

417

$

7,513,725

$

(285,086)

$

(4,796,406)

$

2,432,650

Share-based compensation

 

 

88,923

 

 

 

88,923

Issuance of shares under employee related plans

 

4

 

5,263

 

 

 

5,267

Net share settlement of restricted share units

 

 

(20,212)

 

 

 

(20,212)

Other comprehensive loss, net

 

 

(319,416)

 

 

(319,416)

Net loss

 

(1,787,429)

(1,787,429)

Balance, September 30, 2022

$

421

$

7,587,699

$

(604,502)

$

(6,583,835)

$

399,783

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, (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, (v) “Oceania Cruises” refers to the Oceania Cruises brand and (vi) “Regent” refers to the Regent Seven Seas Cruises brand.

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, 2023, we had 31 ships with approximately 66,000 Berths and had orders for six additional ships to be delivered through 2028.

We have four Prima Class Ships on order with currently scheduled delivery dates from 2025 through 2028. We have one Explorer Class Ship on order for delivery in 2023. We have one Allura Class Ship on order for delivery in 2025. These additions to our fleet will increase our total Berths to approximately 82,000.

2.   Summary of Significant Accounting Policies

Liquidity

As of September 30, 2023, we had liquidity of approximately $2.2 billion, including cash and cash equivalents of $681.6 million and borrowings available under our $875 million undrawn Revolving Loan Facility and $650 million undrawn commitment of Class B Notes and Backstop Notes issuable by NCLC less related fees (see Note 7 – “Long-Term Debt”). Additionally, in October 2023, we increased our Revolving Loan Facility to $1.2 billion (see Note 7 – “Long-Term Debt”). We believe that we have sufficient liquidity to fund our obligations and expect to remain in compliance with our financial covenants for at least the next twelve months from the issuance of these financial statements.

We will continue to pursue various opportunities to refinance future debt maturities to reduce interest expense and/or to extend the maturity dates associated with our existing indebtedness and obtain relevant financial covenant amendments or waivers, if needed.

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 was phased in gradually through May 2022. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022, which are included in our most recent Annual Report on Form 10-K filed with the SEC on February 28, 2023.

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Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the basic weighted-average number of shares outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) and assumed conversion of exchangeable notes by diluted weighted-average shares outstanding.

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

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Net income (loss) - Basic EPS

$

345,868

$

(295,394)

$

272,663

$

(1,787,429)

Effect of dilutive securities - exchangeable notes

17,510

13,809

Net income (loss) and assumed conversion of exchangeable notes - Diluted EPS

$

363,378

$

(295,394)

$

286,472

$

(1,787,429)

Basic weighted-average shares outstanding

 

425,398,415

 

420,798,538

 

424,087,517

 

419,224,710

Dilutive effect of share awards

 

3,676,562

 

 

2,594,108

 

Dilutive effect of exchangeable notes

82,510,468

34,137,750

Diluted weighted-average shares outstanding

 

511,585,445

 

420,798,538

 

460,819,375

 

419,224,710

Basic EPS

$

0.81

$

(0.70)

$

0.64

$

(4.26)

Diluted EPS

$

0.71

$

(0.70)

$

0.62

$

(4.26)

Each exchangeable note (see Note 7 – “Long-Term Debt”) is individually evaluated for its dilutive or anti-dilutive impact on EPS. Only the interest expense and weighted average shares for exchangeable notes that are dilutive are included in the effect of dilutive securities above. During the three months ended September 30, 2023, each of the exchangeable notes was dilutive. During the nine months ended September 30, 2023, only the 2027 1.125% Exchangeable Notes were dilutive. For the three months ended September 30, 2023 and 2022, a total of 3.8 million and 96.3 million shares, respectively, and for the nine months ended September 30, 2023 and 2022, a total of 54.4 million and 93.5 million shares, respectively, 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. The resulting gains or losses are recognized in our consolidated statements of operations within other income (expense), net. We recognized gains of $15.7 million and $34.7 million for the three months ended September 30, 2023 and 2022, respectively, and a loss of $4.2 million and a gain of $79.4 million for the nine months ended September 30, 2023 and 2022, respectively, related to remeasurement of assets and liabilities denominated in foreign currencies. Remeasurements of foreign currency related to operating activities are recognized within changes in operating assets and liabilities in the consolidated statement of cash flows.

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 included $42.0 million and $118.4 million due from credit card processors as of September 30, 2023 and December 31, 2022, respectively.

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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, 

    

2023

    

2022

    

2023

    

2022

North America

$

1,234,852

$

892,971

$

3,817,082

$

2,053,909

Europe

 

1,284,421

 

718,435

 

2,245,868

 

1,243,149

Asia-Pacific

 

15,972

 

2,957

 

311,524

 

24,611

Other

792

1,147

188,994

2,962

Total revenue

$

2,536,037

$

1,615,510

$

6,563,468

$

3,324,631

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, 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 through the U.S. Revenue attributable to U.S.-sourced guests has approximated 83-87% of total revenue over the preceding three fiscal years. 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, 2023 and December 31, 2022, our receivables from customers were $91.0 million and $94.2 million, respectively, primarily related to in-transit credit card receivables.

Our standard payment and cancellation penalties apply for all sailings after March 31, 2023. Future cruise credits that have been issued as face value reimbursement for cancelled bookings due to COVID-19 are approximately $71.3 million. 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.

Our contract liabilities are included within advance ticket sales. As of September 30, 2023 and December 31, 2022, our contract liabilities were $2.1 billion and $1.7 billion, respectively. Of the amounts included within contract liabilities as of September 30, 2023, approximately 40% were refundable in accordance with our cancellation policies. Of the deposits included within advance ticket sales, the majority are refundable in accordance with our cancellation policies and it is uncertain to what extent guests may request refunds. For the nine months ended September 30, 2023, $1.7 billion of revenue recognized was included in the contract liability balance at the beginning of the period.

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4.   Leases

Operating lease balances were as follows (in thousands):

    

Balance Sheet location

    

September 30, 2023

 

December 31, 2022

Operating leases

 

  

 

  

  

Right-of-use assets

 

Other long-term assets

$

702,125

$

707,086

Current operating lease liabilities

 

Accrued expenses and other liabilities

36,579

39,689

Non-current operating lease liabilities

 

Other long-term liabilities

582,836

588,064

5.   Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 was as follows (in thousands):

Nine Months Ended September 30, 2023

    

    

Change

Accumulated

Change

Related to

Other

Related to

Shipboard

Comprehensive

Cash Flow

Retirement

    

Income (Loss)

    

Hedges

 Plan

Accumulated other comprehensive income (loss) at beginning of period

$

(477,079)

$

(480,578)

$

3,499

  

Current period other comprehensive income before reclassifications

 

34,833

 

34,833

  

 

  

Amounts reclassified into earnings

 

(13,699)

 

(13,890)

(1)

 

191

(2)

Accumulated other comprehensive income (loss) at end of period

$

(455,945)

$

(459,635)

(3)

$

3,690

  

Accumulated other comprehensive income (loss) for the nine months ended September 30, 2022 was as follows (in thousands):

Nine Months Ended September 30, 2022

    

    

Change

 

Accumulated

Change

Related to

Other

Related to

Shipboard

Comprehensive

Cash Flow

Retirement

    

Income (Loss)

    

Hedges

 Plan

Accumulated other comprehensive income (loss) at beginning of period

 

$

(285,086)

$

(279,696)

$

(5,390)

 

Current period other comprehensive income (loss) before reclassifications

 

 

(244,361)

 

 

(246,742)

  

 

2,381

 

Amounts reclassified into earnings

 

 

(75,055)

 

 

(75,339)

(1)

 

284

(2)

Accumulated other comprehensive income (loss) at end of period

 

$

(604,502)

 

$

(601,777)

$

(2,725)

 

(1)We refer you to Note 8 “Fair Value Measurements and Derivatives” for the affected line items in the consolidated statements of operations.
(2)Amortization of prior-service cost and actuarial loss reclassified to other income (expense), net.
(3)Includes $24.3 million of gains expected to be reclassified into earnings in the next 12 months.

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6.Property and Equipment, Net

Property and equipment, net increased $1.5 billion for the nine months ended September 30, 2023 primarily due to the delivery of Norwegian Viva, a Prima Class Ship, and Oceania Cruises’ Vista, an Allura Class Ship. We determine the weighted average useful lives of each class of ships based primarily on our estimates of the useful lives of the ships’ major component systems on the date of acquisition, such as cabins, main diesels, main electric, superstructure and hull, and their related proportional weighting to the ship as a whole. We have assessed the weighted-average useful life of the components of Oceania Cruises’ Vista and assigned a useful life of 35 years and residual value of 10% to the Allura Class Ships. The useful life and residual value consider the historical useful lives of similar assets, manufacturer recommended lives, planned maintenance programs, anticipated changes in technological conditions and the related proportional weighting of the major components of the Allura Class Ships. We refer you to our Annual Report on Form 10-K for a discussion of the useful life and residual value assigned to Prima Class Ships.

7.   Long-Term Debt

In February 2023, NCLC issued $600.0 million aggregate principal amount of 8.375% senior secured notes due 2028 (the “2028 Senior Secured Notes”). The 2028 Senior Secured Notes and related guarantees are secured by first-priority interests in, among other things and subject to certain agreed security principles, fourteen of our vessels that also secure the Sixth ARCA and 2029 Senior Secured Notes (each as defined below). The 2028 Senior Secured Notes are guaranteed by our subsidiaries that own the vessels that secure the 2028 Senior Secured Notes. NCLC may redeem the 2028 Senior Secured Notes at its option, in whole or in part, at any time and from time to time prior to February 1, 2025, at a “make-whole” redemption price, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. NCLC may redeem the 2028 Senior Secured Notes at its option, in whole or in part, at any time and from time to time on or after February 1, 2025, at the redemption prices set forth in the indenture governing the 2028 Senior Secured Notes plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. At any time and from time to time prior to February 1, 2025, NCLC may choose to redeem up to 40% of the aggregate principal amount of the 2028 Senior Secured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 108.375% of the principal amount of the 2028 Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 60% of the aggregate principal amount of the 2028 Senior Secured Notes issued remains outstanding following such redemption. The 2028 Senior Secured Notes pay interest at 8.375% per annum, semiannually on February 1 and August 1 of each year, to holders of record at the close of business on the immediately preceding January 15 and July 15, respectively.

The proceeds from the 2028 Senior Secured Notes were used to repay the loans outstanding under our Term Loan A Facility that otherwise would have become due in January 2024, including to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses.

The indenture governing the 2028 Senior Secured Notes includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets.

In July 2022, NCLC entered into a $1 billion amended and restated commitment letter (the “commitment letter”) with the purchasers named therein (collectively, the “Commitment Parties”), which superseded a $1 billion commitment letter previously executed in November 2021. The commitment letter, among other things, extended the commitments thereunder through March 31, 2023. In February 2023, the Commitment Parties further amended the commitment letter (the “amended commitment letter”) to extend certain commitments thereunder through February 2024, with an option for NCLC to further extend such commitments through February 2025 at its election. We may extend or replace the commitments in or before February 2024. Pursuant to the amended commitment letter, the Commitment Parties have agreed to purchase from NCLC an aggregate principal amount of up to $650 million of senior secured notes at NCLC’s option. NCLC has the option to make up to two draws, consisting of (i) $250 million of senior secured notes due 2028 that, if issued, will accrue interest at a rate of 11.00% per annum subject to a 1.00% increase or decrease based on certain

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market conditions at the time drawn (the “Class B Notes”) and (ii) $400 million aggregate principal amount of 8.00% senior secured notes due five years after the issue date (the “Backstop Notes”). The Class B Notes and the Backstop Notes are subject to a quarterly commitment fee of 0.75% for so long as the commitments with respect to Class B Notes or the Backstop Notes, as applicable, are outstanding, which fee will be increased to 1.00% if NCLC extends the commitments through February 2025 at its election. If drawn, the Class B Notes will be subject to an issue fee of 2.00%, and the Backstop Notes will be subject to a quarterly duration fee of 1.50%, as well as an issue fee of 3.00%.

In February 2023, in connection with the execution of the amended commitment letter, NCLC issued $250 million aggregate principal amount of 9.75% senior secured notes due 2028 (the “Class A Notes” and, collectively with the Class B Notes and the Backstop Notes, the “Notes”), subject to an issue fee of 2.00%. NCLC used the net proceeds from the Class A Notes for general corporate purposes. NCLC may redeem the Class A Notes at its option, in whole or in part, at any time and from time to time prior to February 22, 2025, at a “make-whole” redemption price, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. NCLC may redeem the Class A Notes at its option, in whole or in part, at any time and from time to time on or after February 22, 2025, at the redemption prices set forth in the indenture governing the Class A Notes, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. The Class A Notes pay interest at 9.75% per annum, quarterly on February 15, May 15, August 15 and November 15 of each year, to holders of record at the close of business on the immediately preceding February 1, May 1, August 1 and November 1, respectively.

The Class A Notes are, and the Class B Notes and the Backstop Notes, if issued, will be, secured by first-priority interests in, among other things and subject to certain agreed security principles, shares of capital stock in certain guarantors, our material intellectual property and two islands that we use in the operations of our cruise business. The Class A Notes are, and the Class B Notes and the Backstop Notes, if issued, will be, guaranteed by our subsidiaries that own the property that secures the Notes as well as certain additional subsidiaries whose assets do not secure the Notes.

The indenture governing the Class A Notes includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets.

In February 2023, NCLC entered into a Backstop Agreement with Morgan Stanley & Co. LLC (“MS”), pursuant to which MS agreed to provide backstop committed financing to refinance and/or repay in whole or in part amounts outstanding under the Senior Secured Credit Facility. Pursuant to the Backstop Agreement, we could, at our sole option, issue and sell to MS (subject to the satisfaction of certain conditions) five-year senior unsecured notes up to an aggregate principal amount sufficient to generate gross proceeds of $300 million at any time between October 4, 2023 and January 2, 2024. As a result of the refinancing of the Senior Secured Credit Facility in October 2023 (discussed below), the backstop committed financing is no longer applicable.

In April 2023, $82.5 million in aggregate principal amount of the Revolving Loan Facility due January 2024 was assigned to a new lender, and the maturity date was extended by one year to January 2025. The terms of the assigned principal were the same as the existing lenders who extended commitments in December 2022 under Amendment No. 4 to the Senior Secured Credit Facility.

In April 2023, we took delivery of Oceania Cruises’ Vista. We had export credit financing in place for 80% of the contract price. The associated $632.6 million term loan bears interest at a fixed rate of 3.64% with a maturity date of April 30, 2035. Principal and interest payments are payable semiannually.

In May and June 2023, certain of NCLC’s export-credit backed facilities were amended to replace LIBOR with Term SOFR. In connection with these amendments, the Company adopted 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

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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. As of June 30, 2023, we have applied certain optional expedients in our accounting for these amendments and the impact was immaterial.

In August 2023, we took delivery of Norwegian Viva. We had export credit financing in place for 80% of the contract price. The associated $1.1 billion term loan bears interest at a fixed rate of 2.77% with a maturity date of August 3, 2035. Principal and interest payments are payable semiannually.

In October 2023, NCLC issued $790.0 million aggregate principal amount of senior secured notes due 2029 (the “2029 Senior Secured Notes”). The 2029 Senior Secured Notes and related guarantees are secured by first-priority interests in, among other things and subject to certain agreed security principles, fourteen of our vessels that also secure the Sixth ARCA (as defined below) and the 2028 Senior Secured Notes. The 2029 Senior Secured Notes are guaranteed by our subsidiaries that own the vessels that secure the 2029 Senior Secured Notes. NCLC may redeem the 2029 Senior Secured Notes at its option, in whole or in part, at any time and from time to time prior to January 15, 2026, at a “make-whole” redemption price, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. NCLC may redeem the 2029 Senior Secured Notes at its option, in whole or in part, at any time and from time to time on or after January 15, 2026, at the redemption prices set forth in the indenture governing the 2029 Senior Secured Notes plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. At any time and from time to time prior to January 15, 2026, NCLC may choose to redeem up to 40% of the aggregate principal amount of the 2029 Senior Secured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 108.125% of the principal amount of the 2029 Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 60% of the aggregate principal amount of the 2029 Senior Secured Notes issued remains outstanding following such redemption. The 2029 Senior Secured Notes pay interest at 8.125% per annum, semiannually on January 15 and July 15 of each year, commencing on July 15, 2024, to holders of record at the close of business on the immediately preceding January 1 and July 1, respectively.

NCLC used the net proceeds from the 2029 Senior Secured Notes offering, together with cash on hand, to repay the Term Loan A Facility, which would have matured in January 2025, including to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses.

The indenture governing the 2029 Senior Secured Notes includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets.

In October 2023, NCLC amended and restated the Senior Secured Credit Facility (the “Sixth ARCA”). The Sixth ARCA, among other things, increased the aggregate amount of the Revolving Loan Facility from $875 million to $1.2 billion. The Sixth ARCA and related guarantees are secured by first-priority interests in, among other things and subject to certain agreed security principles, fourteen of our vessels that also secure the 2028 Senior Secured Notes and 2029 Senior Secured Notes. The commitments and any loans under the Revolving Loan Facility mature on October 18, 2026, provided that (a) if, on September 16, 2024, NCLC’s 3.625% senior notes due 2024 have not been repaid or refinanced with indebtedness maturing after January 16, 2027 and a liquidity test is not satisfied, the maturity date will be September 16, 2024, (b) if, on May 2, 2025, NCLC’s 2025 Exchangeable Notes have not been repaid or refinanced with indebtedness maturing after January 16, 2027 and a liquidity test is not satisfied, the maturity date will be May 2, 2025, and (c) if, on December 15, 2025, more than $300 million of NCLC’s 5.875% senior notes due 2026 remain outstanding and the remainder has not been repaid or refinanced with indebtedness maturing after January 16, 2027, the maturity date will be December 15, 2025. The Revolving Loan Facility will accrue interest (x) in the case of alternate base rate loans, at a per annum rate based on an alternate base rate plus a margin of between 0.00% and 1.25% and (y) in the case of term benchmark loans, at a per annum rate based on the adjusted term Secured Overnight Financing Rate plus a margin of between 1.00% and 2.25%. The Revolving Loan Facility commitments will accrue an unused commitment fee

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on the amount of available unused commitments at a rate of between 0.15% and 0.30%. The applicable margin and unused commitment fee will depend on the total leverage ratio as of the applicable date.

The Sixth ARCA also (a) increased the basket for Permitted Additional Debt (as defined in the Sixth ARCA) and increased the amount of such additional debt that may be secured on assets that are not collateral and (b) extended certain financial covenants through the amended maturity date. As described above, NCLC used the net proceeds from the 2029 Senior Secured Notes offering, together with cash on hand, to repay all of the Term Loan A Facility, including to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses. No term loans are outstanding under the Sixth ARCA.

Exchangeable Notes

The following is a summary of NCLC’s exchangeable notes as of September 30, 2023 (in thousands):

Unamortized

Principal

Deferred

Net Carrying

Fair Value

    

Amount

    

Financing Fees

    

Amount

    

Amount

    

Leveling

2024 Exchangeable Notes (1)

$

146,601

$