Norwegian Cruise Line Holdings Ltd. [NCLH] Filings

10-Q 1 nclh-20220930x10q.htm 10-Q

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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, 2022

☐ 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 421,396,100 ordinary shares outstanding as of October 31, 2022.

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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	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 6.	Exhibits	46

SIGNATURES		47

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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,
	2022		2021		2022		2021
Revenue
Passenger ticket	$	1,105,908	$	86,127	$	2,242,255	$	87,877
Onboard and other		509,602		66,954		1,082,376		72,672
Total revenue		1,615,510		153,081		3,324,631		160,549
Cruise operating expense
Commissions, transportation and other		352,798		32,338		696,946		47,935
Onboard and other		126,740		19,306		255,445		21,841
Payroll and related		287,390		154,440		790,697		323,225
Fuel		186,984		79,238		503,682		175,931
Food		76,810		16,672		177,483		27,314
Other		208,176		137,762		623,374		294,092
Total cruise operating expense		1,238,898		439,756		3,047,627		890,338
Other operating expense
Marketing, general and administrative		375,291		229,142		1,000,578		617,820
Depreciation and amortization		186,551		173,289		547,214		517,867
Total other operating expense		561,842		402,431		1,547,792		1,135,687
Operating loss		(185,230)		(689,106)		(1,270,788)		(1,865,476)
Non-operating income (expense)
Interest expense, net		(152,330)		(161,205)		(624,392)		(1,122,905)
Other income (expense), net		31,461		4,720		100,572		57,464
Total non-operating income (expense)		(120,869)		(156,485)		(523,820)		(1,065,441)
Net loss before income taxes		(306,099)		(845,591)		(1,794,608)		(2,930,917)
Income tax benefit (expense)		10,705		(294)		7,179		(2,949)
Net loss	$	(295,394)	$	(845,885)	$	(1,787,429)	$	(2,933,866)
Weighted-average shares outstanding
Basic		420,798,538		370,016,479		419,224,710		356,591,143
Diluted		420,798,538		370,016,479		419,224,710		356,591,143
Loss per share
Basic	$	(0.70)	$	(2.29)	$	(4.26)	$	(8.23)
Diluted	$	(0.70)	$	(2.29)	$	(4.26)	$	(8.23)

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

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net loss	$	(295,394)	$	(845,885)	$	(1,787,429)	$	(2,933,866)
Other comprehensive loss:
Shipboard Retirement Plan		95		98		2,665		295
Cash flow hedges:
Net unrealized loss		(195,543)		(45,134)		(246,742)		(73,497)
Amount realized and reclassified into earnings		(31,762)		12,948		(75,339)		48,328
Total other comprehensive loss		(227,210)		(32,088)		(319,416)		(24,874)
Total comprehensive loss	$	(522,604)	$	(877,973)	$	(2,106,845)	$	(2,958,740)

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

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Norwegian Cruise Line Holdings Ltd.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)


	September 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	1,186,714	$	1,506,647
Short-term investments		—		240,000
Accounts receivable, net		393,118		1,167,473
Inventories		155,880		118,205
Prepaid expenses and other assets		421,672		269,243
Total current assets		2,157,384		3,301,568
Property and equipment, net		14,511,649		13,528,806
Goodwill		98,134		98,134
Trade names		500,525		500,525
Other long-term assets		1,683,237		1,300,804
Total assets	$	18,950,929	$	18,729,837
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt	$	1,012,722	$	876,890
Accounts payable		141,305		233,172
Accrued expenses and other liabilities		1,217,103		1,059,034
Advance ticket sales		2,291,624		1,561,336
Total current liabilities		4,662,754		3,730,432
Long-term debt		12,893,407		11,569,700
Other long-term liabilities		994,985		997,055
Total liabilities		18,551,146		16,297,187
Commitments and contingencies (Note 10)
Shareholders’ equity:
Ordinary shares, $0.001 par value; 980,000,000 shares authorized; 421,393,338 shares issued and outstanding at September 30, 2022 and 416,891,915 shares issued and outstanding at December 31, 2021		421		417
Additional paid-in capital		7,587,699		7,513,725
Accumulated other comprehensive income (loss)		(604,502)		(285,086)
Accumulated deficit		(6,583,835)		(4,796,406)
Total shareholders’ equity		399,783		2,432,650
Total liabilities and shareholders’ equity	$	18,950,929	$	18,729,837

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,
	2022		2021
Cash flows from operating activities
Net loss	$	(1,787,429)	$	(2,933,866)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		593,423		560,972
Gain on derivatives		(151)		(23,560)
Loss on extinguishment of debt		188,433		601,539
Provision for bad debts and inventory obsolescence		5,438		14,118
Gain on involuntary conversion of assets		(1,880)		(7,706)
Share-based compensation expense		88,923		88,974
Net foreign currency adjustments on euro-denominated debt		(17,672)		(7,238)
Changes in operating assets and liabilities:
Accounts receivable, net		765,692		(979,890)
Inventories		(38,388)		(26,676)
Prepaid expenses and other assets		(555,561)		(65,771)
Accounts payable		(97,802)		15,014
Accrued expenses and other liabilities		116,947		142,144
Advance ticket sales		713,447		469,595
Net cash used in operating activities		(26,580)		(2,152,351)
Cash flows from investing activities
Additions to property and equipment, net		(1,628,442)		(539,530)
Purchases of short-term investments		—		(770,000)
Proceeds from maturities of short-term investments		240,000		205,000
Cash paid on settlement of derivatives		(214,035)		(14,465)
Other		10,991		11,024
Net cash used in investing activities		(1,591,486)		(1,107,971)
Cash flows from financing activities
Repayments of long-term debt		(1,465,439)		(889,206)
Proceeds from long-term debt		3,003,003		1,345,041
Common share issuance proceeds, net		—		1,558,396
Proceeds from employee related plans		5,267		3,141
Net share settlement of restricted share units		(20,212)		(16,672)
Early redemption premium		(172,012)		(611,164)
Deferred financing fees		(52,474)		(59,880)
Net cash provided by financing activities		1,298,133		1,329,656
Net decrease in cash and cash equivalents		(319,933)		(1,930,666)
Cash and cash equivalents at beginning of period		1,506,647		3,300,482
Cash and cash equivalents at end of period	$	1,186,714	$	1,369,816

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, 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.

Consolidated Statements of Changes in Shareholders’ Equity - Continued

(Unaudited)

(in thousands)


	Three Months Ended September 30, 2021
					Accumulated
			Additional		Other				Total
	Ordinary		Paid-in		Comprehensive		Accumulated		Shareholders’
	Shares		Capital		Income (Loss)		Deficit		Equity
Balance, June 30, 2021	$	370	$	6,329,585	$	(232,903)	$	(2,377,800)	$	3,719,252
Share-based compensation		—		39,922		—		—		39,922
Issuance of shares under employee related plans		—		2,052		—		—		2,052
Net share settlement of restricted share units		—		(14)		—		—		(14)
Other comprehensive loss, net		—		—		(32,088)		—		(32,088)
Net loss		—		—		—		(845,885)		(845,885)
Balance, September 30, 2021	$	370	$	6,371,545	$	(264,991)	$	(3,223,685)	$	2,883,239

	Nine Months Ended September 30, 2021
					Accumulated
			Additional		Other				Total
	Ordinary		Paid-in		Comprehensive		Accumulated		Shareholders’
	Shares		Capital		Income (Loss)		Deficit		Equity
Balance, December 31, 2020	$	316	$	4,889,355	$	(240,117)	$	(295,449)	$	4,354,105
Share-based compensation		—		88,974		—		—		88,974
Issuance of shares under employee related plans		—		3,141		—		—		3,141
Common share issuance proceeds, net		54		1,558,342		—		—		1,558,396
Net share settlement of restricted share units		—		(16,672)		—		—		(16,672)
Cumulative change in accounting policy		—		(131,240)		—		5,630		(125,610)
Other		—		(20,355)		—		—		(20,355)
Other comprehensive loss, net		—		—		(24,874)		—		(24,874)
Net loss		—		—		—		(2,933,866)		(2,933,866)
Balance, September 30, 2021	$	370	$	6,371,545	$	(264,991)	$	(3,223,685)	$	2,883,239

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

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Norwegian Cruise Line Holdings Ltd.

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, 2022, we had 29 ships with approximately 62,000 Berths and had orders for eight additional ships to be delivered through 2027. We have converted some double occupancy cabins to studio cabins and we expect to convert an additional 900 cabins in early 2023. Due to COVID-19, we temporarily suspended all global cruise voyages from March 2020 until July 2021, when we resumed cruise voyages on a limited basis. We refer you to Note 2 – “Summary of Significant Accounting Policies” for further information.

Norwegian Prima was delivered in July 2022. We have five additional Prima Class Ships on order with currently scheduled delivery dates from 2023 through 2027. We have one Explorer Class Ship on order for delivery in 2023. We have two Allura Class Ships on order for delivery in 2023 and 2025. These additions to our fleet will increase our total Berths to approximately 82,000.

2. Summary of Significant Accounting Policies

Liquidity and Management’s Plan

Due to the impact of COVID-19, travel restrictions and limited access to ports around the world, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across its three brands. In the third quarter of 2021, we began a phased relaunch of certain cruise voyages with our ships initially operating at reduced occupancy levels. In early May 2022, the Company completed the phased relaunch of its entire fleet with all ships now in operation with guests on board.

Significant events affecting travel typically have an impact on demand for cruise vacations, with the full extent of the impact determined by the length of time the event influences travel decisions. The level of occupancy on our ships and the percentage of our fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, further resurgences of COVID-19 or the emergence of other public health crises, our ability to comply with governmental regulations and implement new health and safety protocols, port availability, travel restrictions, bans and advisories, and our ability to staff our ships. In addition, as a result of conditions associated with the COVID-19 pandemic and other global events, such as Russia’s ongoing invasion of Ukraine and actions taken by the United States and other governments in response to the invasion, the global economy, including the financial and credit markets, has recently experienced significant volatility and disruptions, including increases in inflation rates, fuel prices, and interest rates. These conditions have resulted, and may continue to result, in increased expenses and may also impact travel or consumer discretionary spending. We believe the ongoing effects of the foregoing factors and events on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity.

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

●

Expected gradual return to historical occupancy levels;

●

Expected increase in revenue per passenger cruise day through a combination of both passenger ticket and onboard revenue as compared to 2019;

●

Forecasted cash collections in accordance with the terms of our credit card processing agreements (see Note 10 - “Commitments and Contingencies”); and

●

Expected continued higher fuel prices and the impact of inflation.

We cannot make assurances that our assumptions used to estimate our liquidity requirements will not change due to the dynamic nature of the current economic landscape. Accordingly, the full effect of the COVID-19 pandemic and other global events impacting macroeconomic conditions and travel and consumer discretionary spending, including Russia’s ongoing invasion of Ukraine, on our financial performance and financial condition cannot be quantified at this time. We have made reasonable estimates and judgments of the impact of these events within our financial statements and there may be material changes to those estimates in future periods. We have taken actions to improve our liquidity, including completing various capital market transactions and making capital expenditure and operating expense reductions, and we expect to continue to pursue further opportunities to improve our liquidity.

Based on these actions and assumptions as discussed above, and considering our cash and cash equivalents of $1.2 billion as of September 30, 2022 and the net impact of our $1 billion undrawn commitment less related fees (see Note 7 – “Long-Term Debt”), we have concluded that we have sufficient liquidity to satisfy our obligations for at least the next twelve months.

Subsequent to the liquidity assessment period (twelve months from the issuance of these financial statements), the

Company has approximately $2.2 billion of debt that will mature in January 2024. The Company is currently taking steps to address this maturity.

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. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021, which are included in our most recent Annual Report on Form 10-K filed with the SEC on March 1, 2022.

Revisions to Previously Reported Quarterly Financial Statements

During the fourth quarter of 2021, the Company identified an error in its consolidated balance sheet as of September 30, 2021 and consolidated statement of cash flows for the nine months ended September 30, 2021. Based on their nature, certain amounts shown as cash and cash equivalents should have been classified as short-term investments. We have determined that these errors were not material to the previously issued interim financial statements for the period ended September 30, 2021.

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As a result of the error, the amounts previously reported as cash and cash equivalents have been reclassified to cash flows used in investing activities in the consolidated statement of cash flows for the nine months ended September 30, 2021 as follows (in thousands):


	Nine months ended September 30, 2021
	Previously				As
	Reported		Adjustments		Reported
Cash flows from investing activities
Purchases of short-term investments	$	—	$	(770,000)	$	(770,000)
Proceeds from maturities of short-term investments		—		205,000		205,000
Net cash used in investing activities		(542,971)		(565,000)		(1,107,971)

Net decrease in cash and cash equivalents		(1,365,666)		(565,000)		(1,930,666)
Cash and cash equivalents at end of period		1,934,816		(565,000)		1,369,816

Loss Per Share

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net loss	$	(295,394)	$	(845,885)	$	(1,787,429)	$	(2,933,866)
Basic weighted-average shares outstanding		420,798,538		370,016,479		419,224,710		356,591,143
Dilutive effect of share awards		—		—		—		—
Diluted weighted-average shares outstanding		420,798,538		370,016,479		419,224,710		356,591,143
Basic loss per share	$	(0.70)	$	(2.29)	$	(4.26)	$	(8.23)
Diluted loss per share	$	(0.70)	$	(2.29)	$	(4.26)	$	(8.23)

For the three months ended September 30, 2022 and 2021, a total of 96.3 million and 98.9 million, respectively, and for the nine months ended September 30, 2022 and 2021, a total of 93.5 million and 106.3 million, respectively, shares have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive.

Foreign Currency

The majority of our transactions are settled in U.S. dollars. We remeasure assets and liabilities denominated in foreign currencies at exchange rates in effect at the balance sheet date. The resulting gains or losses are recognized in our consolidated statements of operations within other income (expense), net. We recognized gains of $34.7 million and $9.9 million for the three months ended September 30, 2022 and 2021, respectively, and gains of $79.4 million and $14.9 million for the nine months ended September 30, 2022 and 2021, 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 $237.0 million and $1.1 billion due from credit card processors as of September 30, 2022 and December 31, 2021, respectively.

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Recently Issued Accounting Guidance

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provided guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. As of September 30, 2022, we have not adopted any expedients and exceptions under ASU 2020-04. We will continue to evaluate the impact of ASU 2020-04 on our consolidated financial statements.

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,
	2022		2022
North America	$	892,971	$	2,053,909
Europe		718,435		1,243,149
Asia-Pacific		2,957		24,611
Other		1,147		2,962
Total revenue	$	1,615,510	$	3,324,631

Amounts for the comparative three and nine months ended September 30, 2021 are excluded as the information is not meaningful. North America includes the U.S., the Caribbean, Canada and Mexico. Europe includes the Baltic region, Canary Islands and Mediterranean. Asia-Pacific includes Australia, New Zealand and Asia. Other includes all other international territories.

Segment Reporting

We have concluded that our business has a single reportable segment. Each brand, Norwegian, Oceania Cruises and Regent, constitutes a business for which discrete financial information is available and management regularly reviews the brand level operating results and, therefore, each brand is considered an operating segment. Our operating segments have similar economic and qualitative characteristics, including similar long-term margins and similar products and services; therefore, we aggregate all of the operating segments into one reportable segment.

Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to U.S.-sourced guests who make reservations in the U.S. Revenue attributable to U.S.-sourced guests has approximated 80-87% 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, 2022, our receivables from customers were $58.5 million.

Our cancellation policies permit certain guests to cancel cruises booked within certain windows for specified time periods up to 15 days prior to departure or in the event of a positive COVID-19 test, and the guests will receive future cruise credits. Standard cancellation penalties apply for all sailings after September 30, 2022. Future cruise credits that

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have been issued as face value reimbursement for cancelled bookings due to COVID-19 are generally valid for any sailing through June 30, 2023, and we may further extend this offer. The future cruise credits are not contracts, and therefore, guests who elected this option are excluded from our contract liability balance; however, the credit for the original amount paid is included in advance ticket sales.

Our contract liabilities are included within advance ticket sales. As of September 30, 2022 and December 31, 2021, our contract liabilities were $1.6 billion and $161.8 million, respectively. Of the amounts included within contract liabilities as of September 30, 2022, 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. Refunds payable to guests are included in accounts payable. For the nine months ended September 30, 2022, $123.1 million 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 due to COVID-19, during the three months ended September 30, 2021, approximately $0.9 million, and during the nine months ended September 30, 2022 and 2021, approximately $0.3 million and $26.9 million, respectively, in costs to obtain these contracts, consisting of protected commissions, including those paid to employees, and credit card fees, were recognized in earnings.

4. Leases

In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19. In this guidance, entities can elect not to apply lease modification accounting with respect to such lease concessions and instead, treat the concession as if it was a part of the existing contract. In 2020, the Company elected to not evaluate leases under the lease modification accounting framework for concessions that result from effects of the COVID-19 pandemic. In relation to our rights to use port facilities, we have elected the approach consistent with resolving a contingency, which allows us to remeasure the lease liability and recognize the amount of change in the lease liability as an adjustment to the carrying amount of the associated right-of-use asset. As of September 30, 2022, certain of our port facilities were remeasured with an increase of $35.2 million to other long-term assets and other long-term liabilities.

Operating lease balances were as follows (in thousands):


	Balance Sheet location	September 30, 2022		December 31, 2021
Operating leases
Right-of-use assets	Other long-term assets	$	826,334	$	794,187
Current operating lease liabilities	Accrued expenses and other liabilities		40,708		34,407
Non-current operating lease liabilities	Other long-term liabilities		696,917		670,688

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5. Accumulated Other Comprehensive Income (Loss)

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)	(3)	$	(2,725)

Accumulated other comprehensive income (loss) for the nine months ended September 30, 2021 was as follows (in thousands):


	Nine Months Ended September 30, 2021
						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	$	(240,117)	$	(234,334)		$	(5,783)
Current period other comprehensive loss before reclassifications		(73,497)		(73,497)			—
Amounts reclassified into earnings		48,623		48,328	(1)		295	(2)
Accumulated other comprehensive income (loss) at end of period	$	(264,991)	$	(259,503)		$	(5,488)

(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 $29.8 million of gain 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 $1.0 billion for the nine months ended September 30, 2022 primarily due to the delivery of Norwegian Prima. We determine the weighted average useful lives of our 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 Norwegian Prima and assigned a useful life of 35 years with a 10% residual value to the Prima 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 Prima Class Ships.

7. Long-Term Debt

In February 2022, NCLC conducted a private offering (the “Notes Offering”) of $1,000 million in aggregate principal amount of 5.875% senior secured notes due 2027 (the “2027 Secured Notes”) and $600 million in aggregate principal amount of 7.750% senior notes due 2029 (the “2029 Unsecured Notes”).

The 2027 Secured Notes are jointly and severally guaranteed on a senior secured basis by Pride of Hawaii, LLC, Norwegian Epic, Ltd. and Sirena Acquisition. The 2027 Secured Notes and the related guarantees are secured by a first-priority interest in, among other things and subject to certain agreed security principles, three of our vessels, namely the Norwegian Jade vessel, the Norwegian Epic vessel and the Sirena vessel.

NCLC may redeem the 2027 Secured Notes at its option, in whole or in part, at any time and from time to time prior to February 15, 2024, 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 2027 Secured Notes at its option, in whole or in part, at any time and from time to time on or after February 15, 2024, at the redemption prices set forth in the indenture governing the 2027 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 15, 2024, NCLC may choose to redeem up to 40% of the aggregate principal amount of the 2027 Secured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 105.875% of the principal amount of the 2027 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 2027 Secured Notes issued remains outstanding following such redemption.

NCLC may redeem the 2029 Unsecured Notes at its option, in whole or in part, at any time and from time to time prior to November 15, 2028, 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 Unsecured Notes at its option, in whole or in part, at any time and from time to time on or after November 15, 2028, at a redemption price equal to 100% of the principal amount of 2029 Unsecured Notes redeemed, 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 15, 2025, NCLC may choose to redeem up to 40% of the aggregate principal amount of the 2029 Unsecured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 107.750% of the principal amount of the 2029 Unsecured 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 Unsecured Notes issued remains outstanding following such redemption.

The indentures governing the 2027 Secured Notes and the 2029 Unsecured Notes include 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 2022, NCLC also conducted a private offering (the “Exchangeable Notes Offering”) of $473.2 million in aggregate principal amount of 2.5% exchangeable senior notes due February 15, 2027 (the “2027 2.5% Exchangeable

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Notes”). The 2027 2.5% Exchangeable Notes are guaranteed by NCLH on a senior basis. At their option, holders may exchange their 2027 2.5% Exchangeable Notes for, at the election of NCLC, cash, ordinary shares of NCLH or a combination of cash and ordinary shares of NCLH, at any time prior to the close of business on the business day immediately preceding August 15, 2026, subject to the satisfaction of certain conditions and during certain periods, and on or after August 15, 2026 until the close of business on the business day immediately preceding the maturity date, regardless of whether such conditions have been met. If NCLC elects to satisfy its exchange obligation solely in ordinary shares or in a combination of ordinary shares and cash, upon exchange, the 2027 2.5% Exchangeable Notes will convert into redeemable preference shares of NCLC, which will be immediately and automatically exchanged, for each $1,000 principal amount of exchanged 2027 2.5% Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate will initially be 28.9765 ordinary shares per $1,000 principal amount of 2027 2.5% Exchangeable Notes (equivalent to an initial exchange price of approximately

Norwegian Cruise Line Holdings Ltd. [NCLH] Filings
10-Q	[2022-11-08]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-03-01]
10-Q	[2021-11-09]
10-Q	[2021-08-09]
10-Q	[2021-05-10]
10-K	[2021-02-26]
10-Q	[2020-11-09]
10-Q	[2020-08-10]
10-Q	[2020-05-15]
10-K	[2020-02-27]
10-Q	[2019-11-08]
10-Q	[2019-08-08]
10-Q	[2019-05-10]
10-K	[2019-02-27]
10-Q	[2018-11-09]
10-Q	[2018-08-09]
10-Q	[2018-05-07]
10-K	[2018-02-27]
10-Q	[2017-11-09]
10-Q	[2017-08-09]
10-Q	[2017-05-10]
10-K	[2017-02-27]
10-Q	[2016-11-09]
10-Q	[2016-08-09]
10-Q	[2016-05-10]
10-K	[2016-02-29]
10-Q	[2015-11-04]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-02-27]
10-Q	[2014-10-31]
10-Q	[2014-07-31]
10-Q	[2014-05-01]
10-K	[2014-02-21]
S-1	[2013-11-20]
10-Q	[2013-10-31]
10-Q	[2013-07-30]
S-1	[2013-07-30]
10-Q	[2013-05-08]
10-K	[2013-02-20]