Company Quick10K Filing
NCL
Price2.91 EPS31
Shares31 P/E0
MCap91 P/FCF0
Net Debt6,017 EBIT950
TEV6,107 TEV/EBIT6
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-02-27
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-02-27
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-10
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-11-04
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-08
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-10-31
10-Q 2014-06-30 Filed 2014-07-31
10-Q 2014-03-31 Filed 2014-05-01
10-K 2013-12-31 Filed 2014-02-21
10-Q 2013-09-30 Filed 2013-10-31
10-Q 2013-06-30 Filed 2013-07-30
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-02-20
20-F 2011-12-31 Filed 2012-02-22
20-F 2010-12-31 Filed 2011-02-09
20-F 2009-12-31 Filed 2010-02-24
8-K 2020-07-30 Sale of Shares, Other Events, Exhibits
8-K 2020-07-16 Earnings, Regulation FD, Other Events, Exhibits
8-K 2020-07-16 Enter Agreement, Leave Agreement, Off-BS Arrangement, Sale of Shares, Other Events, Exhibits
8-K 2020-07-14 Officers, Regulation FD, Exhibits
8-K 2020-07-08
8-K 2020-07-06 Regulation FD, Exhibits
8-K 2020-06-19
8-K 2020-06-04
8-K 2020-06-03
8-K 2020-05-28
8-K 2020-05-14
8-K 2020-05-14
8-K 2020-05-05
8-K 2020-05-05
8-K 2020-05-05
8-K 2020-05-05
8-K 2020-04-28
8-K 2020-04-27
8-K 2020-04-20
8-K 2020-03-12
8-K 2020-03-05
8-K 2020-02-20
8-K 2019-12-16
8-K 2019-12-02
8-K 2019-11-29
8-K 2019-11-07
8-K 2019-10-03
8-K 2019-08-08
8-K 2019-06-07
8-K 2019-05-15
8-K 2019-05-09
8-K 2019-02-21
8-K 2019-01-10
8-K 2019-01-08
8-K 2019-01-02
8-K 2018-11-28
8-K 2018-11-28
8-K 2018-11-08
8-K 2018-09-11
8-K 2018-08-09
8-K 2018-07-18
8-K 2018-07-11
8-K 2018-05-02
8-K 2018-04-23
8-K 2018-04-17
8-K 2018-03-20
8-K 2018-03-05
8-K 2018-02-27
8-K 2018-02-27
8-K 2018-02-22
8-K 2018-01-30

NCLC 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.1 nclc-20200331xex10d1.htm
EX-10.2 nclc-20200331xex10d2.htm
EX-31.1 nclc-20200331xex31d1.htm
EX-31.2 nclc-20200331xex31d2.htm
EX-32.1 nclc-20200331xex32d1.htm

NCL Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2016128402012201420172020
Assets, Equity
2.01.61.20.70.3-0.12012201420172020
Rev, G Profit, Net Income
1.20.70.3-0.2-0.6-1.12012201420172020
Ops, Inv, Fin

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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 March 31, 2020

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: 333-128780

NCL CORPORATION LTD.

(Exact name of registrant as specified in its charter)

Bermuda

 

20-0470163

(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

N/A

N/A

N/A

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  

(Note: The registrant is a voluntary filer of reports required to be filed under Section 13 or 15 (d) of the Securities Exchange Act of 1934).

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 31,164,004 ordinary shares outstanding as of May 8, 2020.

Table of Contents

TABLE OF CONTENTS

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NCL Corporation Ltd.

Consolidated Statements of Operations

(Unaudited)

(in thousands)

Three Months Ended

March 31, 

    

2020

    

2019

Revenue

  

 

  

Passenger ticket

$

840,791

$

973,273

Onboard and other

 

406,091

 

430,357

Total revenue

 

1,246,882

 

1,403,630

Cruise operating expense

 

  

 

  

Commissions, transportation and other

 

332,368

 

229,264

Onboard and other

 

74,973

 

79,413

Payroll and related

 

247,147

 

223,107

Fuel

 

125,024

 

98,253

Food

 

49,216

 

55,045

Other

 

165,532

 

141,569

Total cruise operating expense

 

994,260

 

826,651

Other operating expense

 

  

 

  

Marketing, general and administrative

 

269,907

 

248,334

Depreciation and amortization

 

198,197

 

169,741

Impairment loss

1,607,797

Total other operating expense

 

2,075,901

 

418,075

Operating income (loss)

 

(1,823,279)

 

158,904

Non-operating income (expense)

 

  

 

  

Interest expense, net

 

(68,907)

 

(73,503)

Other income (expense), net

 

5,823

 

(434)

Total non-operating income (expense)

 

(63,084)

 

(73,937)

Net income (loss) before income taxes

 

(1,886,363)

 

84,967

Income tax benefit

 

4,097

 

34,437

Net income (loss)

$

(1,882,266)

$

119,404

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

3

Table of Contents

NCL Corporation Ltd.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)

Three Months Ended

March 31, 

    

2020

    

2019

Net income (loss)

$

(1,882,266)

$

119,404

Other comprehensive income (loss):

 

  

 

  

Shipboard Retirement Plan

 

102

95

Cash flow hedges:

 

Net unrealized gain (loss)

 

(305,860)

15,152

Amount realized and reclassified into earnings

 

21,999

(7,000)

Total other comprehensive income (loss)

 

(283,759)

 

8,247

Total comprehensive income (loss)

$

(2,166,025)

$

127,651

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

4

Table of Contents

NCL Corporation Ltd.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)

    

March 31, 

December 31, 

    

2020

    

2019

Assets

  

 

  

Current assets:

  

 

  

Cash and cash equivalents

$

1,358,821

$

231,239

Accounts receivable, net

 

96,277

 

75,109

Inventories

 

85,516

 

95,427

Prepaid expenses and other assets

 

153,029

 

306,616

Total current assets

 

1,693,643

 

708,391

Property and equipment, net

 

13,567,576

 

13,135,337

Goodwill

 

98,134

 

1,388,931

Tradenames

 

500,525

 

817,525

Other long-term assets

 

599,939

 

612,864

Total assets

$

16,459,817

$

16,663,048

Liabilities and shareholders’ equity

 

  

 

  

Current liabilities:

 

  

 

  

Current portion of long-term debt

$

173,797

$

746,358

Accounts payable

 

364,216

 

100,777

Accrued expenses and other liabilities

 

762,292

 

782,665

Due to NCLH

 

36,317

 

35,044

Advance ticket sales

 

1,659,527

 

1,954,980

Total current liabilities

 

2,996,149

 

3,619,824

Long-term debt

 

8,432,425

 

6,055,335

Other long-term liabilities

 

693,262

 

526,089

Total liabilities

 

12,121,836

 

10,201,248

Commitments and contingencies (Note 11)

 

  

 

  

Shareholders’ equity:

 

  

 

  

Ordinary shares, $0.0012 par value; 40,000,000 shares authorized; 31,164,004 shares issued and outstanding at March 31, 2020 and December 31, 2019

 

37

 

37

Additional paid-in capital

 

4,101,613

 

4,061,330

Accumulated other comprehensive income (loss)

 

(580,962)

 

(297,203)

Retained earnings

 

817,293

 

2,697,636

Total shareholders’ equity

 

4,337,981

 

6,461,800

Total liabilities and shareholders’ equity

$

16,459,817

$

16,663,048

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

5

Table of Contents

NCL Corporation Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

Three Months Ended

March 31, 

    

2020

    

2019

Cash flows from operating activities

 

  

 

  

Net income (loss)

$

(1,882,266)

$

119,404

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

 

  

 

  

Depreciation and amortization expense

 

195,195

 

169,714

Impairment loss

1,607,797

Deferred income taxes, net

 

(5,085)

 

(32,103)

Loss on derivatives

 

13,619

 

4

Loss on extinguishment of debt

2,903

Provision for bad debts and inventory obsolescence

 

8,372

 

1,022

Share-based compensation expense

 

32,758

 

26,999

Net foreign currency adjustments

 

(1,386)

 

(1,896)

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

 

(23,109)

 

(1,939)

Inventories

 

9,258

 

(496)

Prepaid expenses and other assets

 

146,902

 

(58,953)

Accounts payable

 

258,215

 

(89,914)

Accrued expenses and other liabilities

 

(123,903)

 

(41,626)

Advance ticket sales

 

(288,544)

 

439,352

Net cash provided by (used in) operating activities

 

(52,177)

 

532,471

Cash flows from investing activities

 

  

 

  

Additions to property and equipment, net

 

(610,155)

 

(214,559)

Cash received on settlement of derivatives

 

 

289

Cash paid on settlement of derivatives

(28,606)

Other

868

259

Net cash used in investing activities

 

(637,893)

 

(214,011)

Cash flows from financing activities

 

  

 

  

Repayments of long-term debt

 

(181,530)

 

(2,345,589)

Proceeds from long-term debt

 

2,007,870

 

2,392,000

Dividends

 

 

(194,000)

Due to NCLH, net

 

1,273

 

(4,459)

Contribution from NCLH

 

22,500

 

Net share settlement of restricted share units

 

(14,975)

 

(18,850)

Deferred financing fees

 

(12,993)

 

(7,911)

Net cash provided by (used in) financing activities

 

1,822,145

 

(178,809)

Effect of exchange rates on cash and cash equivalents

(4,493)

Net increase in cash and cash equivalents

 

1,127,582

 

139,651

Cash and cash equivalents at beginning of period

 

231,239

 

162,419

Cash and cash equivalents at end of period

$

1,358,821

$

302,070

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

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NCL Corporation Ltd.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(in thousands)

Three Months Ended March 31, 2020

Accumulated

Additional

Other

Total

Ordinary

Paid-in

Comprehensive

Retained

Shareholders’

Shares

    

Capital

    

Income (Loss)

    

Earnings

    

Equity

Balance, December 31, 2019

$

37

$

4,061,330

$

(297,203)

$

2,697,636

$

6,461,800

Share-based compensation

 

 

32,758

 

 

 

32,758

Net share settlement of restricted share units

 

 

(14,975)

 

 

 

(14,975)

Cumulative change in accounting policy

1,923

1,923

Contribution from NCLH

 

 

22,500

 

 

 

22,500

Other comprehensive loss, net

 

 

 

(283,759)

 

 

(283,759)

Net loss

 

 

 

 

(1,882,266)

 

(1,882,266)

Balance, March 31, 2020

$

37

$

4,101,613

$

(580,962)

$

817,293

$

4,337,981

Three Months Ended March 31, 2019

Accumulated

Additional

Other

Total

Ordinary

Paid-in

Comprehensive

Retained

Shareholders’

Shares

    

Capital

    

Income (Loss)

    

Earnings

    

Equity

Balance, December 31, 2018

$

37

$

3,983,714

$

(163,360)

$

2,097,430

$

5,917,821

Share-based compensation

 

 

26,999

 

 

 

26,999

Net share settlement of restricted share units

 

 

(18,850)

 

 

 

(18,850)

Other comprehensive income, net

 

 

 

8,247

 

 

8,247

Dividends

(194,000)

(194,000)

Net income

 

 

 

 

119,404

 

119,404

Balance, March 31, 2019

$

37

$

3,991,863

$

(155,113)

$

2,022,834

$

5,859,621

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

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NCL Corporation 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 NCLC (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 March 31, 2020, we had 28 ships with approximately 59,150 Berths and had orders for nine additional ships to be delivered through 2027, subject to certain conditions.

We have one Explorer Class Ship on order for delivery in 2023. We have two Allura Class Ships on order for delivery in 2022 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 82,000. We expect that the effects of the novel coronavirus (“COVID-19”) on the shipyards where our ships are under construction (or will be constructed) will result in delays in ship deliveries and such delays may be prolonged.

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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 June 30, 2020. On March 14, 2020, concurrent with our and the broader cruise industry’s suspension, the U.S. Centers for Disease Control and Prevention (“CDC”) issued a No Sail Order through April 13, 2020. On April 9, 2020, the CDC modified its existing No Sail Order to extend it 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 or (c) 100 days after the order appears on the Federal Register, which would be July 24, 2020. In addition, the duration of any voluntary suspensions we have implemented and resumption of operations outside of the United States will be dependent, in part, on 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 may continue well beyond the containment of such an outbreak. Due to the unknown duration and extent of the outbreak, 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 cannot be quantified at this time, but we expect to report a net loss for the year ending December 31, 2020.

Subsequent to March 31, 2020, we have taken steps to improve our liquidity through securing deferrals of existing debt amortization, including through available export credit agencies and related governments, as discussed more fully under Note 8 – “Long-Term Debt”. The Company has received additional financing through debt and equity transactions totaling $1.95 billion in proceeds after underwriting fees. The Company expects to receive another $400.0 million from the transaction with L Catterton upon the satisfaction of certain customary closing conditions. Refer to Note 15 – “Subsequent Events” for further information on the equity financing. The Company has also undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19, through the reduction of capital expenditures and operating expenses.

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), 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 twelve months and maintain minimum levels of liquidity as required by certain of our debt agreements.

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, although demand for cruises during the summer months of 2020 are expected to continue to be 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 May 5, 2020.

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Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current period presentation.

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 gain of $19.9 million and a loss of $1.0 million for the three months ended March 31, 2020 and 2019, 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.

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.

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

March 31, 

    

2020

    

2019

North America

$

951,056

$

982,989

Europe

 

13,335

 

33,752

Asia-Pacific

 

150,921

 

222,767

South America

76,306

90,303

Other

 

55,264

 

73,819

Total revenue

$

1,246,882

$

1,403,630

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

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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 75-80%. 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 March 31, 2020 and December 31, 2019, our receivables from customers were $17.3 million and $15.3 million, respectively.

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 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 either September 30 or December 31, 2020, 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 March 31, 2020 and December 31, 2019, our contract liabilities were $0.2 billion and $1.4 billion, respectively. Of the amounts included within contract liabilities as of March 31, 2020, approximately 60% were refundable in accordance with our cancellation policies. For the three months ended March 31, 2020, $0.9 billion of revenue recognized was included in the contract liability balance at the beginning of the period.

For cruise vacations that had been cancelled by us as of March 31, 2020, approximately $92.0 million in costs to obtain these contracts, consisting of protected commissions and credit card fees, were recognized in earnings during the three months ended March 31, 2020.

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 June 30, 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” for information on our valuation assumptions.

The changes in the carrying amount of goodwill for each reporting unit for the three months ended March 31, 2020 are as follows (in thousands):

Reporting Unit

Norwegian

Regent

Cruise

Oceania

Seven Seas

Total

Line

    

Cruises

    

Cruises

    

Goodwill

Balance, December 31, 2019

 

$

403,805

$

523,026

$

462,100

$

1,388,931

Impairment loss

 

(403,805)

 

(523,026)

 

(363,966)

 

(1,290,797)

Balance, March 31, 2020

$

$

$

98,134

$

98,134

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As of March 31, 2020, we impaired our tradenames for Oceania Cruises and Regent Seven Seas Cruises by $170.0 million and $147.0 million, respectively. Following these impairments, the carrying value of our tradenames was $500.5 million.

The carrying amounts of intangible assets subject to amortization are included within other long-term assets. The gross carrying amounts of intangible assets, the related accumulated amortization, the net carrying amounts and the weighted-average amortization periods of the Company’s intangible assets are listed in the following tables (in thousands, except amortization period):

March 31, 2020

    

    

    

    

Weighted-

Average

Gross Carrying

Accumulated

Net Carrying

Amortization

Amount

Amortization

Amount

 

Period (Years)

Customer relationships

$

120,000

$

(112,943)

$

7,057

 

6.0

License

 

750

 

(350)

 

400

 

10.0

Total intangible assets subject to amortization

$

120,750

$

(113,293)

$

7,457

 

  

December 31, 2019

    

    

    

    

Weighted-

Average

Gross Carrying

Accumulated

Net Carrying

Amortization

Amount

Amortization

Amount

 

Period (Years)

Customer relationships

$

120,000

$

(110,169)

$

9,831

 

6.0

Licenses

 

750

 

(331)

 

419

 

10.0

Total intangible assets subject to amortization

$

120,750

$

(110,500)

$

10,250

 

  

The aggregate amortization expense for intangible assets is as follows (in thousands):

Three Months Ended

March 31, 

    

2020

    

2019

Amortization expense

$

2,793

$

4,622

The following table sets forth the Company’s estimated aggregate amortization expense for each of the five years below (in thousands):

    

Amortization

Year Ended December 31,

Expense

2021

$

75

2022

75

2023

75

2024

75

2025

44

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5.            Leases

Lease balances were as follows (in thousands):

    

Balance Sheet location

    

March 31, 2020

 

December 31, 2019

Operating leases

  

Right-of-use assets

 

Other long-term assets

 

$

229,588

$

236,604

Current operating lease liabilities

 

Accrued expenses and other liabilities

 

23,874

39,126

Non-current operating lease liabilities

 

Other long-term liabilities

 

200,428

207,243

Finance leases

Right-of-use assets

 

Property and equipment, net

 

13,386

13,873

Current finance lease liabilities

 

Current portion of long-term debt

 

5,304

6,419

Non-current finance lease liabilities

 

Long-term debt

 

7,895

8,812

6.            Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) for the three months ended March 31, 2020 was as follows (in thousands):

Three Months Ended March 31, 2020

 

    

    

    

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

$

(297,203)

$

(290,009)

  

$

(7,194)

  

Current period other comprehensive loss before reclassifications

 

(305,860)

 

(305,860)

  

 

  

Amounts reclassified into earnings

 

22,101

 

21,999

(1)

 

102

(2)

Accumulated other comprehensive income (loss) at end of period

$

(580,962)

$

(573,870)

(3)

$

(7,092)

  

Accumulated other comprehensive income (loss) for the three months ended March 31, 2019 was as follows (in thousands):

Three Months Ended March 31, 2019

 

    

    

    

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

$

(163,360)

$

(158,096)

$

(5,264)

Current period other comprehensive income before reclassifications

 

15,152

 

15,152

  

 

Amounts reclassified into earnings

 

(6,905)

 

(7,000)

(1)

 

95

(2)

Accumulated other comprehensive income (loss) at end of period

$

(155,113)

$

(149,944)

  

$

(5,169)

(1)We refer you to Note 9— “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, net.
(3)Includes $107.6 million of loss expected to be reclassified into earnings in the next 12 months.

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7.             Property and Equipment, net

Property and equipment, net increased $432.2 million for the three months ended March 31, 2020 primarily due to the delivery of Seven Seas Splendor in January 2020 and ship improvement projects slightly offset by a $25.4 million impairment of projects that will not be completed, which has been recognized in depreciation and amortization expense.

8.            Long-Term Debt

As of March 31, 2020, NCLC had borrowed $875 million under its existing Revolving Loan Facility maturing on January 2, 2024. As of March 31, 2020 borrowings under the Revolving Loan Facility bear interest at LIBOR plus a margin of 1.25%.

In March 2020, NCLC entered into a $675 million revolving credit facility (“Epic Credit Facility”) maturing on March 4, 2021, with JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, and certain other lenders party thereto. NCLC has borrowed $675 million under the facility, which bears interest at LIBOR plus a margin of 0.80%. The facility is secured by Norwegian Epic, Ltd. In April 2020, NCLC entered into an incremental assumption agreement, which supplements the Epic Credit Facility. The incremental assumption agreement extended the maturity date of the revolving facility commitments under the Epic Credit Facility to March 3, 2022 following the consummation of the successful debt and equity financing, which resulted in aggregate gross proceeds greater than the amount required for the extension. The revolving facility loans will accrue interest at a per annum rate based on LIBOR plus a margin of 1.75% in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 0.75% in the case of base rate loans.

In April 2020, NCLC amended $386 million of export credit backed facilities that finance Norwegian Breakaway, Norwegian Getaway, Norwegian Escape, Norwegian Joy, Norwegian Bliss and Norwegian Encore to incorporate the terms of a 12-month debt holiday initiative offered to the cruise industry by Euler Hermes Aktiengesellschaft (“Hermes”), the official export credit agency of Germany. The debt holiday was initiated to provide interim debt service and financial covenant relief for borrowers during the current global COVID-19 pandemic with respect to their Hermes guaranteed financings. The amended agreements provide that, among other things, (a) amortization payments due from April 1, 2020 to March 31, 2021 (the “Deferral Period”) on the loans will be deferred and (b) the principal amounts so deferred will constitute separate tranches of loans under the facilities. The separate tranches of loans will accrue interest at a floating rate per annum based on six-month LIBOR plus a margin as follows:

Margin

529.8 million Breakaway one loan (Norwegian Breakaway)

0.90

%  

529.8 million Breakaway two loan (Norwegian Getaway)

1.20

%  

590.5 million Breakaway three loan (Norwegian Escape)

1.50

%  

729.9 million Breakaway four loan (Norwegian Joy)

1.50

%  

710.8 million Seahawk 1 term loan (Norwegian Bliss)

1.00

%  

748.7 million Seahawk 2 term loan (Norwegian Encore)

1.00

%  

After the end of the Deferral Period, the deferred amounts will amortize in eight equal semiannual installments.

Also in April 2020, NCLC amended the $230 million credit agreement, dated as of January 10, 2019, with Nordea Bank ABP, New York Branch, as administrative agent, and certain other lenders. The amendment extends the maturity date of the term loan by one year to January 10, 2022. From January 10, 2021 to January 10, 2022, the loan shall accrue interest at a per annum rate based on LIBOR plus a margin of 1.75% in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 0.75% in the case of base rate loans.

In May 2020, NCLC amended its $260 million credit agreement, dated as of May 15, 2019, with Bank of America, N.A., as administrative agent and collateral agent, and certain other lenders. The amendment provides that (a) amortization payments due through May 1, 2021 will be deferred following the consummation of the successful debt and equity financing, which resulted in aggregate gross proceeds greater than the amount required for the extension and (b) the principal amount so deferred will constitute a separate tranche of loans under the facility (the “Deferred Jewel Loans”). The Deferred Jewel Loans will accrue interest at a per annum rate based on LIBOR plus a margin of 2.50% in the case

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of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 1.50% in the case of base rate loans. After the end of the deferral period, the deferred loan payments will amortize in an aggregate principal amount equal to 25% per annum in semiannual installments, and in the case of such payment due on the maturity date, an amount equal to the then unpaid principal amount of the Deferred Jewel Loans outstanding.

In addition, in May 2020, NCLH and NCLC entered into an investment agreement with an affiliate of L Catterton (the “Private Investor”), pursuant to which NCLC agreed to sell and issue to the Private Investor (the “Private Exchangeable Notes Transaction”) up to $400 million in aggregate principal amount of exchangeable senior notes due 2026 (the “Private Exchangeable Notes”). The Private Exchangeable Notes Transaction is expected to close no later than May 29, 2020 upon the satisfaction of certain customary closing conditions. The Private Exchangeable Notes will accrue interest at a rate of 7.0% per annum for the first year post-issuance (which will accrete to the principal amount), 4.5% per annum interest (which will accrete to the principal amount) plus 3.0% per annum cash interest for the following four years and 7.5% per annum in cash interest for the final year prior to maturity. The Private Investor will have certain registration rights in respect of NCLH’s ordinary shares underlying the Private Exchangeable Notes and be subject to certain customary transfer, voting and standstill restrictions.

The Private Exchangeable Notes will be guaranteed by NCLH on a senior basis. Holders may exchange their Private Exchangeable Notes at their option into redeemable preference shares of NCLC. Upon exchange, the preference shares will be immediately and automatically exchanged, for each $1,000 principal amount of exchanged Private Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate will initially be approximately 82.6446 ordinary shares per $1,000 principal amount of Private Exchangeable Notes (equivalent to an initial exchange price of $12.10 per ordinary share), subject to future adjustment. NCLC has the right to redeem all or a portion of the Private Exchange Notes at any time after the third anniversary of the issuance date at a price equal to 100% of the accreted principal amount thereof if the market closing price of NCLH’s ordinary shares has been at least 250% of the per share price implied by the exchange rate then in effect for at least 20 trading days during any 30 consecutive trading day period.

In May 2020, NCLC conducted a private offering of $675.0 million aggregate principal amount of 12.25% senior secured notes due 2024 (the “Senior Secured Notes”) at 99% original issue discount and a private offering of $862.5 million aggregate principal amount of 6.00% exchangeable senior notes due 2024 (the “Exchangeable Notes”). The Exchangeable Notes will be guaranteed by NCLH on a senior basis. Holders may exchange their Exchangeable Notes at their option into redeemable preference shares of NCLC. Upon exchange, the preference shares will be immediately and automatically exchanged, for each $1,000 principal amount of exchanged Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate will initially be 72.7273 ordinary shares per $1,000 principal amount of Exchangeable Notes (equivalent to an initial exchange price of approximately $13.75 per ordinary share), subject to adjustment.

The Senior Secured Notes will pay interest at 12.25% per annum, semiannually on May 15 and November 15 of each year, commencing on November 15, 2020, to holders of record at the close of business on the immediately preceding May 1 and November 1, respectively. NCLC may redeem the Senior Secured Notes, in whole or part, at any time prior to February 15, 2024, at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date and a “make-whole premium.” NCLC may redeem the Senior Secured Notes, in whole or in part, on or after February 15, 2024, at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date. At any time on or prior to February 15, 2022, NCLC may choose to redeem up to 35% of the aggregate principal amount of the Senior Secured Notes at a redemption price equal to 112.25% of the principal amount of the Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 65% of the aggregate principal amount of the Senior Secured Notes issued remains outstanding following such redemption.

The Senior Secured Notes will be secured by first-priority interests in, among other things and subject to certain agreed security principles, shares of capital stock in certain subsidiary guarantors, two of our vessels, our material intellectual property and two islands that we use in the operations of our cruise business. The Senior Secured Notes will also be guaranteed by our subsidiaries that own the property that will secure the Senior Secured Notes as well as certain additional subsidiaries whose assets will not secure the Senior Secured Notes. The indenture governing the Senior

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Secured Notes will include requirements that will, 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 our assets.

NCLC entered into a Fifth Amended and Restated Credit Agreement, dated as of May 8, 2020, with a subsidiary of NCLC, as co-borrower and JPMorgan Chase Bank, N.A., as administrative agent, and lenders holding 87.57% of the term loans outstanding. This revised facility provides that, among other things, (a) amortization payments due within the first year after effectiveness will be deferred and (b) the principal amount so deferred will constitute a separate tranche of loans (the “Deferred Term A Loans”). The Deferred Term A Loans will accrue interest (x) in the case of Eurocurrency loans, at a per annum rate based on LIBOR plus a margin of 2.50% or (y) in the case of base rate loans, at a per annum rate based on the base rate plus a margin of 1.50%. After the end of the deferral period, the Deferred Term A Loans will amortize in an aggregate principal amount equal to 25% per annum of the Deferred Term A Loans, in quarterly installments, and in the case of such payment due on the maturity date, an amount equal to the then unpaid principal amount of the Deferred Term A Loans outstanding. The Term A Loans (other than the Deferred Term A Loans) shall constitute a separate class of loans (the “Legacy Term A Loans), with the same terms as the Term A Loans under the Fourth Amended and Restated Credit Agreement, except that the amortization payments on the Legacy Term A Loans shall be deferred during the deferral period.

As a result of the aforementioned executed amendments, including those with contingent conditions that were satisfied on May 8, 2020, we have reclassified $1.4 billion of debt which was originally classified as a current liability based on the contractual maturities outstanding at March 31, 2020 to long-term debt. The following are scheduled principal repayments on long-term debt including finance lease obligations as of March 31, 2020 for each of the next five years (in thousands):

Year

    

Amount

April 1, 2020 - March 31, 2021

$

173,797

April 1, 2021 - March 31, 2022

 

1,742,815

April 1, 2022 - March 31, 2023

 

872,491

April 1, 2023 - March 31, 2024

 

2,819,592

April 1, 2024 - March 31, 2025

 

1,147,007

Thereafter

 

1,996,325

Total

$

8,752,027

We are in the process of seeking consents to amend our export-credit backed facilities to incorporate the terms of a 12-month debt holiday initiative offered to the cruise industry by Servizi Assicurativi del Commercio Estero (“SACE”), the official ECA of Italy, to refinance the amortization payments on such facilities, but we cannot guarantee the outcome of that process.

At March 31, 2020, we were in compliance with all of our debt covenants. Subsequent to March 31, 2020, as part of the Hermes debt holiday we have obtained lender consents to waive financial covenants for the Deferral Period. If we do not continue to remain in compliance with our covenants, we would have to seek additional amendments to our covenants. However, no assurances can be made that such amendments would be approved by our lenders. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which could have a material adverse impact to our operations and liquidity.

9.            Fair Value Measurements and Derivatives

Fair value is defined as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

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Fair Value Hierarchy

The following hierarchy for inputs used in measuring fair value should maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available:

Level 1    Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement dates.

Level 2    Significant other observable inputs that are used by market participants in pricing the asset or liability based on market data obtained from independent sources.

Level 3    Significant unobservable inputs we believe market participants would use in pricing the asset or liability based on the best information available.

Derivatives

We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We attempt to minimize these risks through a combination of our normal operating and financing activities and through the use of derivatives. We assess whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the cash flow of our hedged forecasted transactions. We use regression analysis for this hedge relationship and high effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the fair values of the derivative and the hedged forecasted transaction. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction. If it is determined that the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other comprehensive income (loss) is released to earnings. There are no amounts excluded from the assessment of hedge effectiveness and there are no credit-risk-related contingent features in our derivative agreements. We monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. Credit risk, including but not limited to counterparty non-performance under derivatives, is not considered significant, as we primarily conduct business with large, well-established financial institutions with which we have established relationships, and which have credit risks acceptable to us, or the credit risk is spread out among many creditors. We do not anticipate non-performance by any of our significant counterparties.

As of March 31, 2020, we had fuel swaps and collars, which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately 1.2 million metric tons of our projected fuel purchases, maturing through December 31, 2023.

As of March 31, 2020, we had fuel swaps which were not designated as cash flow hedges. Due to a decrease in forecasted fuel consumption resulting from voyage cancellations due to COVID-19, we released into earnings fuel hedges of approximately 68 thousand metric tons of fuel as these forecasted transactions were no longer probable of occurring. The agreements mature through October 31, 2020.

As of March 31, 2020, we had foreign currency forward contracts, matured foreign currency options and matured foreign currency collars which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. The notional amount of our foreign currency forward contracts was €2.0 billion, or $2.2 billion based on the euro/U.S. dollar exchange rate as of March 31, 2020.

As of March 31, 2020, we had interest rate swaps and collars, which are used to hedge our exposure to interest rate movements and manage our interest expense. The notional amount of our outstanding debt associated with the interest rate swaps and collars was $0.7 billion as of March 31, 2020.

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