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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

OR

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

For the transition period from                      to                     

Commission File Number: 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 275,636,032 ordinary shares outstanding as of October 31, 2020.

Table of Contents

TABLE OF CONTENTS

  

    

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

Item 4.

Controls and Procedures

50

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

52

Item 6.

Exhibits

57

SIGNATURES

59

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Revenue

 

  

 

  

 

  

 

  

Passenger ticket

$

4,667

$

1,373,779

$

859,293

$

3,526,456

Onboard and other

 

1,851

 

540,072

 

411,036

 

1,455,302

Total revenue

 

6,518

 

1,913,851

 

1,270,329

 

4,981,758

Cruise operating expense

 

  

 

  

 

  

 

  

Commissions, transportation and other

 

4,038

 

330,893

 

371,007

 

857,848

Onboard and other

 

4,728

 

122,971

 

82,889

 

309,447

Payroll and related

 

65,571

 

235,833

 

441,462

 

688,325

Fuel

 

48,224

 

98,943

 

222,240

 

297,727

Food

 

3,426

 

56,913

 

59,639

 

166,305

Other

 

64,170

 

145,211

 

308,832

 

456,187

Total cruise operating expense

 

190,157

 

990,764

 

1,486,069

 

2,775,839

Other operating expense

 

  

 

  

 

  

 

  

Marketing, general and administrative

 

156,656

 

255,148

 

558,781

 

744,991

Depreciation and amortization

 

177,488

 

156,215

 

554,937

 

482,227

Impairment loss

1,607,797

Total other operating expense

 

334,144

 

411,363

 

2,721,515

 

1,227,218

Operating income (loss)

 

(517,783)

 

511,724

 

(2,937,255)

 

978,701

Non-operating income (expense)

 

 

  

 

 

  

Interest expense, net

 

(139,664)

 

(60,188)

 

(323,108)

 

(199,660)

Other income (expense), net

 

(23,680)

 

10,251

 

(32,275)

 

13,433

Total non-operating income (expense)

 

(163,344)

 

(49,937)

 

(355,383)

 

(186,227)

Net income (loss) before income taxes

 

(681,127)

 

461,787

 

(3,292,638)

 

792,474

Income tax benefit (expense)

 

3,761

 

(11,203)

 

19,057

 

16,457

Net income (loss)

$

(677,366)

$

450,584

$

(3,273,581)

$

808,931

Weighted-average shares outstanding

 

  

 

  

 

  

 

  

Basic

 

271,435,350

 

214,207,716

 

241,578,995

 

215,614,098

Diluted

 

271,435,350

 

215,499,462

 

241,578,995

 

217,050,055

Earnings (loss) per share

 

  

 

  

 

  

 

  

Basic

$

(2.50)

$

2.10

$

(13.55)

$

3.75

Diluted

$

(2.50)

$

2.09

$

(13.55)

$

3.73

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

3

Table of Contents

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Net income (loss)

$

(677,366)

$

450,584

$

(3,273,581)

$

808,931

Other comprehensive income (loss):

 

  

 

  

 

  

 

  

Shipboard Retirement Plan

 

101

 

95

 

305

 

284

Cash flow hedges:

 

 

 

 

Net unrealized gain (loss)

 

87,710

 

(209,511)

 

(163,672)

 

(211,548)

Amount realized and reclassified into earnings

 

36,072

 

(448)

 

86,853

 

(16,722)

Total other comprehensive income (loss)

 

123,883

 

(209,864)

 

(76,514)

 

(227,986)

Total comprehensive income (loss)

$

(553,483)

$

240,720

$

(3,350,095)

$

580,945

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

4

Table of Contents

Norwegian Cruise Line Holdings Ltd.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)

September 30, 

December 31, 

    

2020

    

2019

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

2,356,211

$

252,876

Accounts receivable, net

 

78,496

 

75,109

Inventories

 

81,259

 

95,427

Prepaid expenses and other assets

 

136,533

 

306,733

Total current assets

 

2,652,499

 

730,145

Property and equipment, net

 

13,453,433

 

13,135,337

Goodwill

 

98,134

 

1,388,931

Trade names

 

500,525

 

817,525

Other long-term assets

 

697,446

 

612,661

Total assets

$

17,402,037

$

16,684,599

Liabilities and shareholders’ equity

 

  

 

  

Current liabilities:

 

  

 

  

Current portion of long-term debt

$

472,359

$

746,358

Accounts payable

 

116,464

 

100,777

Accrued expenses and other liabilities

 

629,811

 

782,275

Advance ticket sales

 

1,115,632

 

1,954,980

Total current liabilities

 

2,334,266

 

3,584,390

Long-term debt

 

10,465,095

 

6,055,335

Other long-term liabilities

 

514,910

 

529,295

Total liabilities

 

13,314,271

 

10,169,020

Commitments and contingencies (Note 11)

 

  

 

  

Shareholders’ equity:

 

  

 

  

Ordinary shares, $0.001 par value; 490,000,000 shares authorized; 300,070,311 shares issued and 275,619,452 shares outstanding at September 30, 2020 and 237,533,270 shares issued and 213,082,411 shares outstanding at December 31, 2019

 

300

 

237

Additional paid-in capital

 

5,155,986

 

4,235,690

Accumulated other comprehensive income (loss)

 

(372,004)

 

(295,490)

Retained earnings

 

557,410

 

3,829,068

Treasury shares (24,450,859 at September 30, 2020 and December 31, 2019, at cost)

 

(1,253,926)

 

(1,253,926)

Total shareholders’ equity

 

4,087,766

 

6,515,579

Total liabilities and shareholders’ equity

$

17,402,037

$

16,684,599

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, 

    

2020

    

2019

Cash flows from operating activities

 

  

 

  

Net income (loss)

$

(3,273,581)

$

808,931

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

 

  

 

  

Depreciation and amortization expense

 

565,208

 

482,497

Impairment loss

1,607,797

Deferred income taxes, net

 

(17,852)

 

(25,731)

Loss on derivatives

12,195

Loss on extinguishment of debt

 

10,480

 

3,988

Provision for bad debts and inventory obsolescence

 

16,293

 

2,852

Gain on involuntary conversion of assets

(1,340)

(2,800)

Share-based compensation expense

 

81,009

 

82,070

Net foreign currency adjustments

 

3,746

 

(4,326)

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

 

(12,103)

 

(12,741)

Inventories

 

12,757

 

(4,681)

Prepaid expenses and other assets

 

79,915

 

(31,926)

Accounts payable

 

11,536

 

(86,525)

Accrued expenses and other liabilities

 

(180,126)

 

(27,504)

Advance ticket sales

 

(834,560)

 

262,938

Net cash provided by (used in) operating activities

 

(1,918,626)

 

1,447,042

Cash flows from investing activities

 

  

 

  

Additions to property and equipment, net

 

(873,142)

 

(615,985)

Cash received on settlement of derivatives

 

 

289

Cash paid on settlement of derivatives

(31,520)

(556)

Other

3,047

5,039

Net cash used in investing activities

 

(901,615)

 

(611,213)

Cash flows from financing activities

 

  

 

  

Repayments of long-term debt

 

(888,800)

 

(2,882,354)

Proceeds from long-term debt

 

5,225,090

 

2,652,000

Common share issuance proceeds, net

719,094

Proceeds from employee related plans

 

5,557

 

18,203

Net share settlement of restricted share units

 

(15,334)

 

(20,935)

Purchases of treasury shares

 

 

(349,860)

Early redemption premium

 

(1,376)

 

(117)

Deferred financing fees

 

(117,388)

 

(9,359)

Net cash provided by (used in) financing activities

 

4,926,843

 

(592,422)

Effect of exchange rates on cash and cash equivalents

(3,267)

Net increase in cash and cash equivalents

 

2,103,335

 

243,407

Cash and cash equivalents at beginning of period

 

252,876

 

163,851

Cash and cash equivalents at end of period

$

2,356,211

$

407,258

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, 2020

Accumulated 

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Retained

Treasury

Shareholders’

Shares

    

Capital

    

Income (Loss)

    

Earnings

    

Shares

    

Equity

Balance, June 30, 2020

 

$

281

$

4,851,781

$

(495,887)

$

1,234,776

$

(1,253,926)

$

4,337,025

Share-based compensation

 

 

25,862

 

 

 

 

25,862

Issuance of shares under employee related plans

 

 

1,457

 

 

 

 

1,457

Common share issuance proceeds, net

19

276,902

276,921

Net share settlement of restricted share units

 

 

(16)

 

 

 

 

(16)

Other comprehensive income, net

 

 

 

123,883

 

 

 

123,883

Net loss

 

 

 

 

(677,366)

 

 

(677,366)

Balance, September 30, 2020

$

300

$

5,155,986

$

(372,004)

$

557,410

$

(1,253,926)

$

4,087,766

Nine Months Ended September 30, 2020

Accumulated 

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Retained

Treasury

Shareholders’

    

Shares

    

Capital

    

Income (Loss)

    

Earnings

    

Shares

    

Equity

Balance, December 31, 2019

 

$

237

$

4,235,690

$

(295,490)

$

3,829,068

$

(1,253,926)

 

$

6,515,579

Share-based compensation

 

 

81,009

 

 

 

 

81,009

Issuance of shares under employee related plans

 

2

 

5,555

 

 

 

 

5,557

Common share issuance proceeds, net

61

717,826

717,887

Net share settlement of restricted share units

 

 

(15,334)

 

 

 

 

(15,334)

Beneficial conversion feature

131,240

131,240

Cumulative change in accounting policy

1,923

1,923

Other comprehensive loss, net

 

 

 

(76,514)

 

 

 

(76,514)

Net loss

 

 

 

 

(3,273,581)

 

 

(3,273,581)

Balance, September 30, 2020

$

300

$

5,155,986

$

(372,004)

$

557,410

$

(1,253,926)

$

4,087,766

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, 2019

Accumulated 

    

    

    

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Retained

Treasury

Shareholders’

Shares

    

Capital

    

Income (Loss)

    

Earnings

    

Shares

Equity

Balance, June 30, 2019

 

$

237

 

$

4,176,825

 

$

(179,769)

 

$

3,257,187

 

$

(1,104,137)

 

$

6,150,343

Share-based compensation

 

 

25,420

 

 

 

 

25,420

Issuance of shares under employee related plans

 

 

6,835

 

 

 

 

6,835

Treasury shares

(149,789)

(149,789)

Net share settlement of restricted share units

 

 

(105)

 

 

 

 

(105)

Other comprehensive loss, net

 

 

 

(209,864)

 

 

 

(209,864)

Net income

 

 

 

 

450,584

 

 

450,584

Balance, September 30, 2019

$

237

$

4,208,975

$

(389,633)

$

3,707,771

$

(1,253,926)

$

6,273,424

Nine Months Ended September 30, 2019

    

Accumulated 

    

    

    

Additional

Other

Total

Ordinary 

Paid-in 

Comprehensive

Retained

Treasury

Shareholders’

    

Shares

    

Capital

    

Income (Loss)

    

Earnings

    

Shares

Equity

Balance, December 31, 2018

 

$

235

 

$

4,129,639

 

$

(161,647)

 

$

2,898,840

 

$

(904,066)

 

$

5,963,001

Share-based compensation

 

 

82,070

 

 

 

 

82,070

Issuance of shares under employee related plans

 

2

 

18,201

 

 

 

 

18,203

Treasury shares

(349,860)

(349,860)

Net share settlement of restricted share units

 

 

(20,935)

 

 

 

 

(20,935)

Other comprehensive loss, net

 

 

 

(227,986)

 

 

 

(227,986)

Net income

 

 

 

 

808,931

 

 

808,931

Balance, September 30, 2019

$

237

$

4,208,975

$

(389,633)

$

3,707,771

$

(1,253,926)

$

6,273,424

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 (including Prestige (as defined below), except for periods prior to the consummation of the Acquisition of Prestige (as defined below)), (ii) “NCLC” refers to NCL Corporation Ltd., (iii) “NCLH” refers to Norwegian Cruise Line Holdings Ltd., (iv) “Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and its predecessors, and (v) “Prestige” refers to Prestige Cruises International S. de R.L. (formerly Prestige Cruises International, Inc.), together with its consolidated subsidiaries, including Prestige Cruise Holdings S. de R.L. (formerly Prestige Cruise Holdings, Inc.), Prestige’s direct wholly-owned subsidiary, which in turn is the parent of Oceania Cruises S. de R.L. (formerly Oceania Cruises, Inc.) (“Oceania Cruises”) and Seven Seas Cruises S. de R.L. (“Regent”) (Oceania Cruises also refers to the brand by the same name and Regent also refers to the brand Regent Seven Seas Cruises).

References to the “U.S.” are to the United States of America, and “dollar(s)” or “$” are to U.S. dollars, the “U.K.” are to the United Kingdom and “euro(s)” or “€” are to the official currency of the Eurozone. We refer you to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Terminology” for the capitalized terms used and not otherwise defined throughout these notes to consolidated financial statements.

1.   Description of Business and Organization

We are a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. As of September 30, 2020, we had 28 ships with approximately 59,150 Berths and had orders for nine additional ships to be delivered through 2027. Due to the novel coronavirus (“COVID-19”), we have temporarily suspended global cruise voyages through December 31, 2020. We refer you to Note 2 – “Summary of Significant Accounting Policies” for further information.

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. Project Leonardo will introduce an additional six ships with expected delivery dates from 2022 through 2027. These additions to our fleet will increase our total Berths to approximately 83,000, which includes additional Berths we plan to add to our Project Leonardo ships, subject to certain conditions. The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged.

2.   Summary of Significant Accounting Policies

Liquidity and Management’s Plan

Due to the continued spread of COVID-19, growing travel restrictions and limited access to ports around the world, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across its three brands, which has subsequently been extended through December 31, 2020. Additionally, Regent has suspended its 2021 World Cruise along with voyages departing through April 2021 on one ship and voyages in Australia through February 2021, Oceania Cruises has cancelled its World Cruise through May 18, 2021 and voyages in Australia through February 2021, and Norwegian has cancelled all voyages aboard three of its ships through March 30, 2021. On March 14, 2020, concurrent with our and the broader cruise industry’s original suspension, the U.S. Centers for Disease Control and Prevention (“CDC”) issued a No Sail Order through April 13, 2020, which was subsequently extended through October 31, 2020. On October 30, 2020, the CDC issued a Framework for Conditional Sailing Order (the “Conditional Order”) that introduces a phased approach for the resumption of passenger cruises. These phases include:

the establishment of laboratory testing of crew onboard cruise ships in U.S. waters;
simulated voyages designed to test a cruise ship operator’s ability to mitigate COVID-19 on cruise ships;

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a certification process; and
a return to passenger voyages in a manner that mitigates the risk of COVID-19 introduction, transmission or spread among passenger and crew onboard ships and ashore to communities.

The Conditional Order replaces the CDC’s No Sail Order that expired on October 31, 2020 and will remain in effect until the earlier of a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, b) the CDC Director rescinds or modifies the Conditional Order based on specific public health or other considerations, or c) November 1, 2021.

While the Conditional Order is an important step on the path to the safer and healthier resumption of cruising in the U.S., many uncertainties remain as to the specifics and timing of implementation, administration and costs of the requirements of the Conditional Order, some of which may be significant. Additionally, pursuant to the Conditional Order, the CDC may issue additional requirements through technical instructions or orders as needed and the phases described above may be subject to change based on public health considerations, including the trajectory of the pandemic and the ability of cruise ship operators to successfully employ measures that mitigate the risk of COVID-19. The duration of any voluntary suspensions we have implemented and the resumption of operations both inside and outside of the United States will be dependent, in part, on our ability to comply with the Conditional Order, the severity and duration of the COVID-19 pandemic, the lifting of various travel restrictions and travel bans issued by various countries and communities around the world, as well as the availability of ports.

We continue to expect a gradual phased relaunch of our ships after the voyage suspension period, with our ships initially operating at reduced occupancy levels. The timing for bringing our ships back to service and percentage of fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, including further resurgences of COVID-19, our ability to comply with the Conditional Order, port availability, travel restrictions and advisories and our ability to re-staff our ships and implement new health and safety protocols. Significant events affecting travel, including COVID-19, typically have an impact on demand for cruise vacations, with the full extent of the impact generally determined by the length of time the event influences travel decisions. We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of the pandemic. Due to the unknown duration and extent of the COVID-19 pandemic, travel restrictions and advisories, uncertainties around our ability to comply with the Conditional Order, the potential unavailability of ports and/or destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, we cannot predict when our full fleet will be back in service at historical occupancy levels and, accordingly, the full effect on our financial performance and financial condition cannot be quantified at this time; however, we will report a net loss for the year ending December 31, 2020.

Since March 2020, we have taken several actions to bolster our financial condition while our global cruise voyages are suspended. In March 2020, NCLC borrowed the full amount of $1.55 billion under its $875 million Revolving Loan Facility and its then existing $675 million Epic Credit Facility, dated as of March 5, 2020. We have taken additional measures to improve our liquidity by refinancing existing debt amortization, including under our agreements with export credit agencies and related governments, and by extending the maturities and refinancing amortization under other agreements, which has resulted in approximately $1.6 billion of payment deferrals. See Note 8 – “Long-Term Debt” for further information. Through September 30, 2020, the Company received additional financing through various debt financings and equity offerings in May and July 2020 totaling $3.9 billion in gross proceeds. See Note 8 – “Long-Term Debt” for further information on the debt financings. The equity offerings resulted in 60,984,848 shares being issued in exchange for gross proceeds of $747.5 million. The Company has also undertaken several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of COVID-19, through the reduction of capital expenditures and operating expenses, including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension, resulting in lower crew payroll expense.

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt

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about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The quantitative liquidity analysis reflects management’s principal assumptions related to (i) the Company’s ability to operate and redeployment of the fleet not currently in service, (ii) forecasted cash collections for future voyages and (iii) forecasted liquidity requirements for ongoing operations. Based on the actions the Company has taken as described above and our resulting current resources, the Company has alleviated the substantial doubt previously disclosed and has sufficient liquidity to satisfy our obligations over the next twelve months and maintain minimum levels of liquidity as required by certain of our debt agreements.

Basis of Presentation

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

Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months; however, our cruise voyages were completely suspended during the summer months of 2020 due to the COVID-19 pandemic. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019, which are included in our most recent Annual Report on Form 10-K filed with the SEC, as updated by our Current Report on Form 8-K filed on July 8, 2020.

Reclassifications

 

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

Earnings (Loss) Per Share

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, 

    

2020

    

2019

    

2020

    

2019

Net income (loss)

$

(677,366)

$

450,584

$

(3,273,581)

$

808,931

Basic weighted-average shares outstanding

 

271,435,350

 

214,207,716

 

241,578,995

 

215,614,098

Dilutive effect of share awards

 

 

1,291,746

 

 

1,435,957

Diluted weighted-average shares outstanding

 

271,435,350

 

215,499,462

 

241,578,995

 

217,050,055

Basic earnings (loss) per share

$

(2.50)

$

2.10

$

(13.55)

$

3.75

Diluted earnings (loss) per share

$

(2.50)

$

2.09

$

(13.55)

$

3.73

For the three months ended September 30, 2020 and 2019, a total of 124.0 million and 3.5 million shares, respectively, and for the nine months ended September 30, 2020 and 2019, a total of 63.4 million and 4.2 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. Gains or losses resulting from transactions denominated in other currencies are recognized in our consolidated statements of operations within other income, net. We recognized a loss of $12.3 million and a gain of $9.9 million for the three months ended September 30, 2020 and 2019, respectively, and a loss of $2.6 million and a gain of $5.6 million for the nine months ended September 30, 2020 and 2019, respectively, related to transactions denominated in other currencies.

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Depreciation and Amortization Expense

The amortization of deferred financing fees is included in depreciation and amortization expense in the consolidated statements of cash flows; however, for purposes of the consolidated statements of operations they are included in interest expense, net.

Recently Issued Accounting Guidance

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”),- which reduces the number of accounting models for convertible debt instruments and enhances transparency in disclosures. One model which is being eliminated is the bifurcation of embedded conversion features that are not accounted for separately as derivatives. A convertible debt instrument previously accounted for under this model will be accounted for as a single liability measured at its amortized cost. Adoption of the provisions of ASU 2020-06 are required for fiscal years beginning after December 15, 2021; however, early adoption is permitted. We will early adopt this guidance on January 1, 2021 on a modified retrospective basis. As a result of the adoption, the beneficial conversion feature on the Private Exchangeable Notes (as defined and discussed in Note 8 – “Long-Term Debt”) which is included in additional paid-in-capital will be reclassified to long-term debt. Any related interest which has been recognized will be adjusted through retained earnings. Additional disclosures will be added as necessary.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provided guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. We are currently evaluating the impact of ASU 2020-04 on our consolidated financial statements.

3.   Revenue Recognition

Disaggregation of Revenue

Revenue and cash flows are affected by economic factors in various geographical regions. Revenues by destination were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

North America

$

1,967

$

930,151

$

956,389

$

2,881,606

Europe

 

2,195

 

831,814

 

25,231

 

1,374,001

Asia-Pacific

 

362

 

128,415

 

151,283

 

418,421

South America

471

430

76,777

94,498

Other

 

1,523

 

23,041

 

60,649

 

213,232

Total revenue

$

6,518

$

1,913,851

$

1,270,329

$

4,981,758

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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 historically approximated 75-80%. No other individual country’s revenues exceed 10% in any given period.

Contract Balances

Receivables from customers are included within accounts receivable, net. As of September 30, 2020 and December 31, 2019, our receivables from customers were $4.1 million and $15.3 million, respectively.

Beginning in March 2020, our brands launched new cancellation policies to permit our guests to cancel cruises which are not part of the Company’s temporary suspension of voyages up to 48 hours or 15 days, depending on the brand, prior to embarkation and receive a refund in the form of a credit to be applied toward a future cruise. These programs are currently in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through specified time periods, depending on the brand. The future cruise credit is valid for any sailing through December 31, 2022, and we may extend this offer. The future cruise credits are not contracts, and therefore, guests who have elected this option are excluded from our contract liability balance; however, the credit for the original amount paid is included in advance ticket sales.

Our contract liabilities are included within advance ticket sales. As of September 30, 2020 and December 31, 2019, our contract liabilities were $33.4 million and $1.4 billion, respectively. Of the amounts included within contract liabilities as of September 30, 2020, approximately 20% were refundable in accordance with our cancellation policies. For the nine months ended September 30, 2020, $0.9 billion of revenue recognized was included in the contract liability balance at the beginning of the period.

For cruise vacations that had been cancelled by us due to COVID-19, approximately $15.5 million and $160.4 million in costs to obtain these contracts, consisting of protected commissions, including those paid to employees, and credit card fees, were recognized in earnings during the three and nine months ended September 30, 2020, respectively.

4.   Intangible Assets

We evaluate goodwill and trade names for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable. In March 2020, the Company announced a voluntary suspension of all cruise voyages for its three brands, which has subsequently been extended through December 31, 2020. Due to the temporary suspension of operations and decline in our stock price, we performed interim goodwill and trade name impairment tests as of March 31, 2020. We refer you to Note 9 – “Fair Value Measurements and Derivatives” for information on our valuation assumptions.

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The changes in the carrying amount of goodwill for each reporting unit for the nine months ended September 30, 2020 are as follows (in thousands):

Reporting Unit

Norwegian

Regent

Cruise

Oceania

<