10-Q 1 nclh-20240331x10q.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 March 31, 2024

OR

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

For the transition period from                      to                     

Commission File Number: 001-35784

NORWEGIAN CRUISE LINE HOLDINGS LTD.

(Exact name of registrant as specified in its charter)

Bermuda

    

98-0691007

(State or other jurisdiction of incorporation or organization)

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

7665 Corporate Center Drive, Miami, Florida 33126

33126

(Address of principal executive offices)

(zip code)

(305) 436-4000

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Ordinary shares, par value $0.001 per share

 

NCLH

 

The New York Stock Exchange

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

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

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

Large accelerated filer 

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

There were 429,040,624 ordinary shares outstanding as of April 30, 2024.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

35

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 5.

Other Information

36

Item 6.

Exhibits

36

SIGNATURES

38

2

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

March 31, 

    

2024

    

2023

Revenue

 

  

 

  

Passenger ticket

$

1,459,814

$

1,208,841

Onboard and other

 

731,401

 

613,098

Total revenue

 

2,191,215

 

1,821,939

Cruise operating expense

 

  

 

  

Commissions, transportation and other

 

436,210

 

409,684

Onboard and other

 

132,036

 

119,697

Payroll and related

 

344,281

 

304,155

Fuel

 

197,734

 

194,868

Food

 

84,708

 

95,966

Other

 

192,454

 

156,048

Total cruise operating expense

 

1,387,423

 

1,280,418

Other operating expense

 

  

 

  

Marketing, general and administrative

 

362,469

 

336,013

Depreciation and amortization

 

222,929

 

194,790

Total other operating expense

 

585,398

 

530,803

Operating income

 

218,394

 

10,718

Non-operating income (expense)

 

 

Interest expense, net

 

(218,177)

 

(171,257)

Other income (expense), net

 

18,137

 

(8,955)

Total non-operating income (expense)

 

(200,040)

 

(180,212)

Net income (loss) before income taxes

 

18,354

 

(169,494)

Income tax benefit (expense)

 

(1,001)

 

10,173

Net income (loss)

$

17,353

$

(159,321)

Weighted-average shares outstanding

 

  

 

  

Basic

 

426,803,519

 

422,655,215

Diluted

 

431,019,206

 

422,655,215

Earnings (loss) per share

 

  

 

  

Basic

$

0.04

$

(0.38)

Diluted

$

0.04

$

(0.38)

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

March 31, 

    

2024

    

2023

Net income (loss)

$

17,353

$

(159,321)

Other comprehensive income (loss):

 

  

 

  

Shipboard Retirement Plan

 

95

 

64

Cash flow hedges:

 

 

Net unrealized gain (loss)

 

47,253

 

(18,475)

Amount realized and reclassified into earnings

 

(3,333)

 

(9,874)

Total other comprehensive income (loss)

 

44,015

 

(28,285)

Total comprehensive income (loss)

$

61,368

$

(187,606)

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)

March 31, 

December 31, 

    

2024

    

2023

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

559,814

$

402,415

Accounts receivable, net

 

282,313

 

280,271

Inventories

 

157,879

 

157,646

Prepaid expenses and other assets

 

590,148

 

472,816

Total current assets

 

1,590,154

 

1,313,148

Property and equipment, net

 

16,463,522

 

16,433,292

Goodwill

 

98,134

 

98,134

Trade names

 

500,525

 

500,525

Other long-term assets

 

1,172,853

 

1,147,891

Total assets

$

19,825,188

$

19,492,990

Liabilities and shareholders’ equity

 

  

 

  

Current liabilities:

 

  

 

  

Current portion of long-term debt

$

1,744,221

$

1,744,778

Accounts payable

 

204,971

 

174,338

Accrued expenses and other liabilities

 

1,019,620

 

1,058,919

Advance ticket sales

 

3,629,707

 

3,060,666

Total current liabilities

 

6,598,519

 

6,038,701

Long-term debt

 

12,005,296

 

12,314,147

Other long-term liabilities

 

859,282

 

839,335

Total liabilities

 

19,463,097

 

19,192,183

Commitments and contingencies (Note 9)

 

  

 

  

Shareholders’ equity:

 

  

 

  

Ordinary shares, $0.001 par value; 980,000,000 shares authorized; 429,025,827 shares issued and outstanding at March 31, 2024 and 425,546,570 shares issued and outstanding at December 31, 2023

 

429

 

425

Additional paid-in capital

 

7,708,869

 

7,708,957

Accumulated other comprehensive income (loss)

 

(464,423)

 

(508,438)

Accumulated deficit

 

(6,882,784)

 

(6,900,137)

Total shareholders’ equity

 

362,091

 

300,807

Total liabilities and shareholders’ equity

$

19,825,188

$

19,492,990

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)

Three Months Ended

March 31, 

    

2024

    

2023

Cash flows from operating activities

 

  

 

  

Net income (loss)

$

17,353

$

(159,321)

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

 

  

 

  

Depreciation and amortization expense

245,092

 

210,676

(Gain) loss on derivatives

(1,125)

4,404

Loss on extinguishment of debt

 

29,000

 

2,434

Provision for bad debts and inventory obsolescence

 

1,532

 

1,199

Gain on involuntary conversion of assets

(2,846)

Share-based compensation expense

 

21,948

 

28,155

Net foreign currency adjustments on euro-denominated debt

 

(6,603)

 

1,021

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

 

(4,052)

 

65,391

Inventories

 

(517)

 

2,812

Prepaid expenses and other assets

 

(83,414)

 

(127,192)

Accounts payable

 

29,987

 

(25,926)

Accrued expenses and other liabilities

 

(31,422)

 

(168,581)

Advance ticket sales

 

592,238

 

668,261

Net cash provided by operating activities

 

807,171

 

503,333

Cash flows from investing activities

 

  

 

  

Additions to property and equipment, net

 

(258,851)

 

(237,676)

Other

3,608

1,320

Net cash used in investing activities

 

(255,243)

 

(236,356)

Cash flows from financing activities

 

  

 

  

Repayments of long-term debt

 

(425,339)

 

(1,821,412)

Proceeds from long-term debt

 

92,406

 

1,330,622

Proceeds from employee related plans

 

 

2,618

Net share settlement of restricted share units

 

(22,032)

 

(11,306)

Early redemption premium

 

(19,163)

 

Deferred financing fees

 

(20,401)

 

(13,886)

Net cash used in financing activities

 

(394,529)

 

(513,364)

Net increase (decrease) in cash and cash equivalents

 

157,399

 

(246,387)

Cash and cash equivalents at beginning of period

 

402,415

 

946,987

Cash and cash equivalents at end of period

$

559,814

$

700,600

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 (Deficit)

(Unaudited)

(in thousands)

Three Months Ended March 31, 2024

Accumulated 

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Accumulated

Shareholders’

    

Shares

    

Capital

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balance, December 31, 2023

 

$

425

$

7,708,957

$

(508,438)

$

(6,900,137)

$

300,807

Share-based compensation

 

 

21,948

 

 

 

21,948

Issuance of shares under employee related plans

 

4

 

(4)

 

 

 

Net share settlement of restricted share units

 

 

(22,032)

 

 

 

(22,032)

Other comprehensive income, net

 

 

 

44,015

 

 

44,015

Net income

 

 

 

 

17,353

 

17,353

Balance, March 31, 2024

$

429

$

7,708,869

$

(464,423)

$

(6,882,784)

$

362,091

Three Months Ended March 31, 2023

    

Accumulated 

    

    

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Accumulated

Shareholders’

    

Shares

    

Capital

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balance, December 31, 2022

 

$

421

$

7,611,564

$

(477,079)

$

(7,066,315)

$

68,591

Share-based compensation

 

 

28,155

 

 

 

28,155

Issuance of shares under employee related plans

 

3

 

2,615

 

 

 

2,618

Net share settlement of restricted share units

 

 

(11,306)

 

 

 

(11,306)

Other comprehensive loss, net

 

 

(28,285)

 

 

(28,285)

Net loss

 

(159,321)

(159,321)

Balance, March 31, 2023

$

424

$

7,631,028

$

(505,364)

$

(7,225,636)

$

(99,548)

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

7

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 March 31, 2024, we had 32 ships with approximately 66,400 Berths and had orders for five additional ships to be delivered through 2028.

As of March 31, 2024, we had four Prima Class Ships on order with currently scheduled delivery dates from 2025 through 2028, and we had one Allura Class Ship on order for delivery in 2025. Subsequent to March 31, 2024, we announced anticipated additional newbuilds for our fleet.

2.   Summary of Significant Accounting Policies

Liquidity

As of March 31, 2024, we had liquidity of approximately $2.4 billion, including cash and cash equivalents of $559.8 million and borrowings available under our $1.2 billion undrawn Revolving Loan Facility and $650 million undrawn commitment of senior unsecured notes issuable by NCLC less related fees (see Note 6 – “Long-Term Debt”). Additionally, in April 2024, a €200 million commitment became available that can be used for future newbuild payments (see Note 6 – “Long-Term Debt”). We believe that we have sufficient liquidity to fund our obligations and expect to remain in compliance with our financial covenants for at least the next twelve months from the issuance of these financial statements.

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

Basis of Presentation

The accompanying consolidated financial statements are unaudited and, in our opinion, contain all normal recurring adjustments necessary for a fair statement of the results for the periods presented.

Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2023, which are included in our most recent Annual Report on Form 10-K filed with the SEC on February 28, 2024.

8

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

March 31, 

    

2024

    

2023

Net income (loss) - Basic EPS

$

17,353

$

(159,321)

Basic weighted-average shares outstanding

 

426,803,519

 

422,655,215

Dilutive effect of share awards

 

4,215,687

 

Diluted weighted-average shares outstanding

 

431,019,206

 

422,655,215

Basic EPS

$

0.04

$

(0.38)

Diluted EPS

$

0.04

$

(0.38)

Each exchangeable note (see Note 6 – “Long-Term Debt”) is individually evaluated for its dilutive or anti-dilutive impact on EPS as determined under the if-converted method. 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 March 31, 2024 and 2023, each of the exchangeable notes was anti-dilutive. Share awards are evaluated for a dilutive or anti-dilutive impact on EPS using the treasury stock method. For the three months ended March 31, 2024 and 2023, a total of 91.1 million and 89.4 million shares, respectively, have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive.

Foreign Currency

The majority of our transactions are settled in U.S. dollars. We remeasure assets and liabilities denominated in foreign currencies at exchange rates in effect at the balance sheet date. The resulting gains or losses are recognized in our consolidated statements of operations within other income (expense), net. We recognized a gain of $13.3 million and a loss of $8.7 million for the three months ended March 31, 2024 and 2023, 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 $19.8 million and $20.1 million due from credit card processors as of March 31, 2024 and December 31, 2023, respectively.

Recently Issued Accounting Guidance

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 includes additional disclosures on an interim and annual basis and requires that the disclosures be applied to public entities that have a single reportable segment. These provisions are effective for fiscal years beginning after December 15, 2023 and interim periods after December 15, 2024. ASU 2023-07 shall be applied retrospectively unless it

9

is impracticable to do so. We are evaluating the impact of ASU 2023-07 on our notes to the consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information as well as certain other amendments to improve the effectiveness of income tax disclosures. The amendments in this update are effective for annual periods beginning after December 15, 2024 and should be applied on a prospective basis. We are evaluating the impact of ASU 2023-09 on our notes to the 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, 

    

2024

    

2023

North America

$

1,560,772

$

1,361,053

Europe

 

25,236

 

81,318

Asia-Pacific

 

397,002

 

205,662

Other

208,205

173,906

Total revenue

$

2,191,215

$

1,821,939

North America includes the U.S., the Caribbean, Canada and Mexico. Europe includes the Baltic region, Canary Islands and Mediterranean. Asia-Pacific includes Australia, New Zealand and Asia. Other includes all other international territories.

Segment Reporting

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

Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to U.S.-sourced guests who make reservations through the U.S. Revenue attributable to U.S.-sourced guests has approximated 84-87% 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 March 31, 2024 and December 31, 2023, our receivables from customers were $131.8 million and $126.4 million, respectively, primarily related to in-transit credit card receivables.

Future cruise credits that have been issued as face value reimbursement for cancelled bookings due to COVID-19 are approximately $66.0 million. The future cruise credits are not contracts, and therefore, guests who elected this option are excluded from our contract liability balance; however, the credit for the original amount paid is included in advance ticket sales.

10

Our contract liabilities are included within advance ticket sales. As of March 31, 2024 and December 31, 2023, our contract liabilities were $2.7 billion and $2.2 billion, respectively. Of the amounts included within contract liabilities as of March 31, 2024, approximately 45% were refundable in accordance with our cancellation policies. Of the deposits included within advance ticket sales, the majority are refundable in accordance with our cancellation policies and it is uncertain to what extent guests may request refunds. For the three months ended March 31, 2024, $1.7 billion of revenue recognized was included in the contract liability balance at the beginning of the period.

4.   Leases

Operating lease balances were as follows (in thousands):

    

Balance Sheet location

    

March 31, 2024

 

December 31, 2023

Operating leases

 

  

 

  

  

Right-of-use assets

 

Other long-term assets

$

764,045

$

753,652

Current operating lease liabilities

 

Accrued expenses and other liabilities

29,043

23,226

Non-current operating lease liabilities

 

Other long-term liabilities

648,487

644,646

5.   Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) for the three months ended March 31, 2024 was as follows (in thousands):

Three Months Ended March 31, 2024

    

    

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

$

(508,438)

$

(508,524)

$

86

  

Current period other comprehensive income before reclassifications

 

47,253

 

47,253

  

 

  

Amounts reclassified into earnings

 

(3,238)

 

(3,333)

(1)

 

95

(2)

Accumulated other comprehensive income (loss) at end of period

$

(464,423)

$

(464,604)

(3)

$

181

  

Accumulated other comprehensive income (loss) for the three months ended March 31, 2023 was as follows (in thousands):

Three Months Ended March 31, 2023

    

    

Change

 

Accumulated

Change

Related to

Other

Related to

Shipboard

Comprehensive

Cash Flow

Retirement

    

Income (Loss)

    

Hedges

 Plan

Accumulated other comprehensive income (loss) at beginning of period

 

$

(477,079)

$

(480,578)

$

3,499

 

Current period other comprehensive loss before reclassifications

 

 

(18,475)

 

 

(18,475)

  

 

 

Amounts reclassified into earnings

 

 

(9,810)

 

 

(9,874)

(1)

 

64

(2)

Accumulated other comprehensive income (loss) at end of period

 

$

(505,364)

 

$

(508,927)

$

3,563

 

(1)We refer you to Note 7 “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 $6.6 million of gains expected to be reclassified into earnings in the next 12 months.

11

6.   Long-Term Debt

In February 2024, NCLC and the purchasers named therein (collectively, the “Commitment Parties”) entered into a third amended and restated commitment letter (the “third amended commitment letter”), which became effective in March 2024. The third amended commitment letter amended and restated the commitment letter dated February 22, 2023 and extended the commitments thereunder through March 2025. Pursuant to the third amended commitment letter, the Commitment Parties have agreed to purchase from NCLC an aggregate principal amount of $650 million of senior unsecured notes due five years after the issue date (the “Commitment Notes”) at NCLC’s option. If issued, the Commitment Notes will be subject to an issue fee of 0.50% and will bear interest at a rate per annum equal to (A) the greater of (i) the interest rate of the 7.75% senior notes due 2029 (“2029 Unsecured Notes”) and (ii) the then-current secondary trading yield applicable to the 2029 Unsecured Notes plus (B) 200 basis points. The Commitment Notes are subject to a one-time structuring fee of 0.50% and a quarterly commitment fee of 0.75% for so long as the commitments with respect to the Commitment Notes are outstanding.

In connection with the execution of the third amended commitment letter, NCLC agreed to repurchase all of the outstanding $250 million aggregate principal amount of 9.75% senior secured notes due 2028 (the “2028 Secured Notes”) at a negotiated premium plus accrued and unpaid interest thereon. In March 2024, in connection with the settlement of the repurchase, the aggregate principal amount outstanding under the 2028 Secured Notes was cancelled while also releasing the related collateral. The loss on extinguishment was $29.0 million, recognized in interest expense, net.

In November 2023, we executed an agreement for a commitment of €200 million in connection with financial support for our newbuilds, which became available in April 2024. The commitment if drawn will pay interest quarterly at a rate per annum based on an applicable margin plus Euribor 3-months. The commitment may be drawn at any time and is payable within 364 days, but no later than July 15, 2025. Any amount repaid prior to July 15, 2025 may be drawn again.

Exchangeable Notes

The following is a summary of NCLC’s exchangeable notes as of March 31, 2024 (in thousands):

Unamortized

Principal

Deferred

Net Carrying

Fair Value

    

Amount

    

Financing Fees

    

Amount

    

Amount

    

Leveling

2024 Exchangeable Notes (1)

$

146,601

$

(193)

$

146,408

$

224,238

Level 2

2025 Exchangeable Notes

449,990

(3,383)

446,607

581,270

Level 2

2027 1.125% Exchangeable Notes

1,150,000

(16,544)

1,133,456

1,098,273

Level 2

2027 2.5% Exchangeable Notes

473,175

(7,254)

465,921

464,540

Level 2

(1)Classified within current portion of long-term debt as of March 31, 2024. We expect that the holders of the 2024 Exchangeable Notes will exchange their 2024 Exchangeable Notes for shares.

The following is a summary of NCLC’s exchangeable notes as of December 31, 2023 (in thousands):

Unamortized

Principal

Deferred

Net Carrying

Fair Value

    

Amount

    

Financing Fees

    

Amount

    

Amount

    

Leveling

2024 Exchangeable Notes (1)

$

146,601

$

(557)

$

146,044

$

217,790

Level 2

2025 Exchangeable Notes

449,990

(3,963)

446,027

572,567

Level 2

2027 1.125% Exchangeable Notes

1,150,000

(17,921)

1,132,079

1,068,431

Level 2

2027 2.5% Exchangeable Notes

473,175

(7,836)

465,339

453,784

Level 2

(1)Classified within current portion of long-term debt as of December 31, 2023. We expect that the holders of the 2024 Exchangeable Notes will exchange their 2024 Exchangeable Notes for shares.

12

The following provides a summary of the interest expense of NCLC’s exchangeable notes (in thousands):

Three Months Ended

March 31, 

2024

    

2023

Coupon interest

$

14,437

$

14,438

Amortization of deferred financing fees

2,903

2,643

Total

$

17,340

$

17,081

As of March 31, 2024, the effective interest rate is 7.04%, 5.97%, 1.64% and 3.06% for the 2024 Exchangeable Notes, 2025 Exchangeable Notes, 2027 1.125% Exchangeable Notes and 2027 2.5% Exchangeable Notes, respectively.

Debt Repayments

The following are scheduled principal repayments on our long-term debt including exchangeable notes, which can be settled in shares, and finance lease obligations as of March 31, 2024 (in thousands):

Year

    

Amount

Remainder of 2024

$

1,569,504

2025

 

1,321,130

2026

 

2,234,657

2027

 

3,291,131

2028

 

1,697,619

2029

1,911,513

Thereafter

 

2,064,110

Total

$

14,089,664

Debt Covenants

As of March 31, 2024, we were in compliance with all of our debt covenants. If we do not continue to remain in compliance with our covenants, we would have to seek additional amendments to or waivers of our covenants. However, no assurances can be made that such amendments or waivers 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 would have a material adverse impact on our operations and liquidity.

7.   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).

Derivatives are generally recorded at fair value. Contracts that are designated as normal purchases and normal sales are not recorded at fair value. The normal purchases and normal sales exception requires, among other things, physical delivery in quantities expected to be used or sold over a reasonable period in the normal course of business. All of our allowance purchase agreements related to the European Union’s Emissions Trading System meet the criteria specified for this exception.

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.

13

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 critical terms match or regression analysis for hedge relationships 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, 2024, we had fuel swaps, which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately 630 thousand metric tons of our projected fuel purchases, maturing through December 31, 2025.

As of March 31, 2024, we had fuel swaps pertaining to approximately 4 thousand metric tons of our projected fuel purchases which were not designated as cash flow hedges maturing through December 31, 2024.

The derivatives measured at fair value and the respective location in the consolidated balance sheets include the following (in thousands):

Assets

Liabilities

March 31, 

December 31, 

March 31, 

December 31, 

    

Balance Sheet Location

    

2024

    

2023

    

2024

    

2023

Derivative Contracts Designated as Hedging Instruments

Fuel contracts

Prepaid expenses and other assets

$

22,725

$

$

109

$

Other long-term assets

2,839

410

Accrued expenses and other liabilities

 

 

4,309

 

 

11,247

Other long-term liabilities

 

 

137

 

 

8,932

Total derivatives designated as hedging instruments

$

25,564

$

4,446

$

519

$

20,179

Derivative Contracts Not Designated as Hedging Instruments

Fuel contracts

Prepaid expenses and other assets

$

$

$

45

$

Accrued expenses and other liabilities

 

141

1,031

Other long-term liabilities

 

 

 

280

Total derivatives not designated as hedging instruments

$

$

141

$

45

$

1,311

Total derivatives

$

25,564

$

4,587

$

564

$

21,490

14

The fair values of swap and forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The Company determines the value of options and collars utilizing an option pricing model based on inputs that are either readily available in public markets or can be derived from information available in publicly quoted markets. The option pricing model used by the Company is an industry standard model for valuing options and is used by the broker/dealer community. The inputs to this option pricing model are the option strike price, underlying price, risk-free rate of interest, time to expiration, and volatility. The fair value of option contracts considers both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values.

Our derivatives and financial instruments were categorized as Level 2 in the fair value hierarchy, and we had no derivatives or financial instruments categorized as Level 1 or Level 3. Our derivative contracts include rights of offset with our counterparties. We have elected to net certain assets and liabilities within counterparties when the rights of offset exist. We are not required to post cash collateral related to our derivative instruments.

The following table discloses the gross and net amounts recognized within assets and liabilities (in thousands):

Gross 

Gross

Gross 

Amounts 

Total Net

Amounts 

March 31, 2024

    

Amounts

    

Offset

    

Amounts

    

Not Offset

    

Net Amounts

Assets

$

25,564

$

(564)

$

25,000

$

$

25,000

Gross

Gross

Gross

Amounts

Total Net

Amounts

December 31, 2023

    

Amounts

    

Offset

    

Amounts

    

Not Offset

    

Net Amounts

Liabilities

$

21,490

$

(4,587)

$

16,903

$

$

16,903

The effects of cash flow hedge accounting on accumulated other comprehensive income (loss) were as follows (in thousands):

Location of Gain

    

    

(Loss) Reclassified

from Accumulated

Amount of Gain (Loss) Reclassified

Amount of Gain (Loss)

Other Comprehensive

from Accumulated Other

Recognized in Other

Income (Loss) into

Comprehensive Income

Derivatives

    

Comprehensive Loss

    

Income (Expense)

    

(Loss) into Income (Expense)

Three Months

Three Months

Three Months

Three Months

Ended

Ended

Ended

Ended

    

March 31, 2024

    

March 31, 2023

    

March 31, 2024

    

March 31, 2023

Fuel contracts

 

$

47,253

$

(29,015)

Fuel

 

$

6,577

$

12,597

Fuel contracts

Other income (expense), net

875

(37)

Foreign currency contracts

 

 

 

10,540

Depreciation and amortization

 

 

(4,119)

 

(2,686)

Total gain (loss) recognized in other comprehensive loss

 

$

47,253

$

(18,475)

  

 

$

3,333

$

9,874

15

The effects of cash flow hedge accounting on the consolidated statements of operations include the following (in thousands):

Three Months Ended March 31, 2024

Three Months Ended March 31, 2023

Depreciation 

Depreciation 

and 

Other Income

and 

Other Income

    

Fuel

    

Amortization

    

 (Expense), net

    

Fuel

    

Amortization

    

 (Expense), net

Total amounts of income and expense line items presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded

$

197,734

$

222,929

$

18,137

$

194,868

$

194,790

$

(8,955)