UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | |||
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Revenue |
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Passenger ticket | $ | | $ | | $ | | $ | | ||||
Onboard and other |
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Total revenue |
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Cruise operating expense |
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Commissions, transportation and other |
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Onboard and other |
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Payroll and related |
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Fuel |
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Food |
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Other |
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Total cruise operating expense |
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Other operating expense |
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Marketing, general and administrative |
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Depreciation and amortization |
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Total other operating expense |
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Operating income (loss) |
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Non-operating income (expense) |
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Interest expense, net |
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Other income (expense), net |
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Total non-operating income (expense) |
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Net income (loss) before income taxes |
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Income tax benefit (expense) |
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Net income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
Weighted-average shares outstanding |
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Basic |
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Diluted |
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Earnings (loss) per share |
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Basic | $ | $ | ( | $ | $ | ( | ||||||
Diluted | $ | $ | ( | $ | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
3
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
Other comprehensive income (loss): |
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Shipboard Retirement Plan |
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Cash flow hedges: |
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Net unrealized gain (loss) |
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Amount realized and reclassified into earnings |
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Total other comprehensive income (loss) |
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Total comprehensive income (loss) | $ | | $ | ( | $ | | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
4
Norwegian Cruise Line Holdings Ltd.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
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Inventories |
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Prepaid expenses and other assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Trade names |
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Other long-term assets |
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Total assets | $ | | $ | | ||
Liabilities and shareholders’ equity |
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Current liabilities: |
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Current portion of long-term debt | $ | | $ | | ||
Accounts payable |
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Accrued expenses and other liabilities |
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Advance ticket sales |
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Total current liabilities |
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Long-term debt |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 10) |
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Shareholders’ equity: |
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Ordinary shares, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
5
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended | ||||||
September 30, | ||||||
| 2023 |
| 2022 | |||
Cash flows from operating activities |
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Net income (loss) | $ | | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization expense | |
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(Gain) loss on derivatives | | ( | ||||
Loss on extinguishment of debt |
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Provision for bad debts and inventory obsolescence |
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Gain on involuntary conversion of assets | ( | ( | ||||
Share-based compensation expense |
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Net foreign currency adjustments on euro-denominated debt |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued expenses and other liabilities |
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Advance ticket sales |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities |
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Additions to property and equipment, net |
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Proceeds from maturities of short-term investments | — | | ||||
Cash paid on settlement of derivatives | ( | ( | ||||
Other | | | ||||
Net cash used in investing activities |
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Cash flows from financing activities |
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Repayments of long-term debt |
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Proceeds from long-term debt |
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Proceeds from employee related plans |
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Net share settlement of restricted share units |
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Early redemption premium |
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Deferred financing fees |
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Net cash provided by financing activities |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
6
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
(in thousands)
Three Months Ended September 30, 2023 | |||||||||||||||
Accumulated | |||||||||||||||
Additional | Other | Total | |||||||||||||
Ordinary | Paid-in | Comprehensive | Accumulated | Shareholders’ | |||||||||||
Shares |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | |||||||
Balance, June 30, 2023 |
| $ | | $ | | $ | ( | $ | ( | $ | | ||||
Share-based compensation |
| — | | — | — | | |||||||||
Issuance of shares under employee related plans |
| — | | — | — | | |||||||||
Common share issuance for NCLC exchangeable notes | — | | — | — | | ||||||||||
Net share settlement of restricted share units |
| — | ( | — | — | ( | |||||||||
Other comprehensive income, net |
| — | — | | — | | |||||||||
Net income |
| — | — | — | | | |||||||||
Balance, September 30, 2023 | $ | | $ | | $ | ( | $ | ( | $ | | |||||
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 |
| $ | | $ | | $ | ( | $ | ( | $ | | ||||
Share-based compensation |
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Issuance of shares under employee related plans |
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Common share issuance for NCLC exchangeable notes | — | | — | — | | ||||||||||
Net share settlement of restricted share units |
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Other comprehensive income, net |
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Net income |
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Balance, September 30, 2023 | $ | | $ | | $ | ( | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
7
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Changes in Shareholders’ Equity - Continued
(Unaudited)
(in thousands)
Three Months Ended September 30, 2022 | |||||||||||||||
Accumulated |
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Additional | Other | Total | |||||||||||||
Ordinary | Paid-in | Comprehensive | Accumulated | Shareholders’ | |||||||||||
Shares |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | |||||||
Balance, June 30, 2022 |
| $ | | $ | | $ | ( | $ | ( | $ | | ||||
Share-based compensation |
| — |
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Issuance of shares under employee related plans |
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Net share settlement of restricted share units |
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| ( |
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Other comprehensive loss, net |
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Net loss |
| — | — | — | ( | ( | |||||||||
Balance, September 30, 2022 | $ | | $ | | $ | ( | $ | ( | $ | | |||||
Nine Months Ended September 30, 2022 | |||||||||||||||
| Accumulated |
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Additional | Other | Total | |||||||||||||
Ordinary | Paid-in | Comprehensive | Accumulated | Shareholders’ | |||||||||||
| Shares |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | ||||||
Balance, December 31, 2021 |
| $ | | $ | | $ | ( | $ | ( | $ | | ||||
Share-based compensation |
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Issuance of shares under employee related plans |
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Net share settlement of restricted share units |
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Other comprehensive loss, net | — |
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Net loss |
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Balance, September 30, 2022 | $ | | $ | | $ | ( | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
8
Norwegian Cruise Line Holdings Ltd.
Notes to Consolidated Financial Statements
(Unaudited)
Unless otherwise indicated or the context otherwise requires, references in this report to (i) the “Company,” “we,” “our” and “us” refer to NCLH (as defined below) and its subsidiaries, (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
We have
2. Summary of Significant Accounting Policies
Liquidity
As of September 30, 2023, we had liquidity of approximately $
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 | $ | | $ | ( | $ | | $ | ( | ||||
Effect of dilutive securities - exchangeable notes | | — | | — | ||||||||
Net income (loss) and assumed conversion of exchangeable notes - Diluted EPS | $ | | $ | ( | $ | | $ | ( | ||||
Basic weighted-average shares outstanding |
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Dilutive effect of share awards |
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Dilutive effect of exchangeable notes | | — | | — | ||||||||
Diluted weighted-average shares outstanding |
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Basic EPS | $ | | $ | ( | $ | | $ | ( | ||||
Diluted EPS | $ | | $ | ( | $ | | $ | ( |
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
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 $
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 $
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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 | $ | | $ | | $ | | $ | | ||||
Europe |
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Asia-Pacific |
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Other | | | | | ||||||||
Total revenue | $ | | $ | | $ | | $ | |
North America includes the U.S., the Caribbean, Canada and Mexico. Europe includes the Baltic region, Canary Islands and Mediterranean. Asia-Pacific includes Australia, New Zealand and Asia. Other includes all other international territories.
Segment Reporting
We have concluded that our business has a single reportable segment. Each brand, Norwegian, Oceania Cruises and Regent, constitutes a business for which discrete financial information is available and management regularly reviews the brand level operating results and, therefore, each brand is considered an operating segment. Our operating segments have similar economic and qualitative characteristics, including similar long-term margins, products and services; therefore, we aggregate all of the operating segments into
Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to U.S.-sourced guests who make reservations through the U.S. Revenue attributable to U.S.-sourced guests has approximated
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 $
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 $
Our contract liabilities are included within advance ticket sales. As of September 30, 2023 and December 31, 2022, our contract liabilities were $
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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 |
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Right-of-use assets |
| $ | | $ | | |||
Current operating lease liabilities |
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Non-current operating lease liabilities |
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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 | ||||||||||
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| 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 | $ | ( | $ | ( | $ | |
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Current period other comprehensive income before reclassifications |
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Amounts reclassified into earnings |
| ( |
| ( | (1) |
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Accumulated other comprehensive income (loss) at end of period | $ | ( | $ | ( | (3) | $ | |
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Accumulated other comprehensive income (loss) for the nine months ended September 30, 2022 was as follows (in thousands):
Nine Months Ended September 30, 2022 | ||||||||||
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| Change |
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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 |
| $ | ( | $ | ( | $ | ( |
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Current period other comprehensive income (loss) before reclassifications |
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Amounts reclassified into earnings |
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| ( | (1) |
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Accumulated other comprehensive income (loss) at end of period |
| $ | ( |
| $ | ( | $ | ( |
|
(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 $ |
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6.Property and Equipment, Net
Property and equipment, net increased $
7. Long-Term Debt
In February 2023, NCLC issued $
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 $
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market conditions at the time drawn (the “Class B Notes”) and (ii) $
In February 2023, in connection with the execution of the amended commitment letter, NCLC issued $
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)
In April 2023, $
In April 2023, we took delivery of Oceania Cruises’ Vista. We had export credit financing in place for
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
14
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
In October 2023, NCLC issued $
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 $
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