Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2013

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

(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)

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

There were 205,083,076 ordinary shares outstanding as of October 25, 2013.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  
PART I. FINANCIAL INFORMATION   

Item 1. Financial Statements

     1   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     15   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     25   

Item 4. Controls and Procedures

     26   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     27   

Item 1A. Risk Factors

     27   

Item 5. Other Information

     27   

Item 6. Exhibits

     27   

SIGNATURES

     28   


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
September 30,
    Nine Months Ended
September 30,
 
     2013     2012     2013     2012  

Revenue

        

Passenger ticket

   $ 583,923      $ 490,322      $ 1,400,470      $ 1,257,871   

Onboard and other

     213,962        184,089        569,479        515,204   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     797,885        674,411        1,969,949        1,773,075   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cruise operating expense

        

Commissions, transportation and other

     140,086        122,331        347,650        321,640   

Onboard and other

     61,744        53,641        153,431        136,851   

Payroll and related

     90,695        72,961        247,543        220,683   

Fuel

     77,035        69,602        225,115        206,743   

Food

     37,596        32,452        101,232        95,163   

Other

     48,946        43,084        164,899        152,759   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cruise operating expense

     456,102        394,071        1,239,870        1,133,839   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other operating expense

        

Marketing, general and administrative

     77,606        57,779        236,923        190,748   

Depreciation and amortization

     56,097        48,423        158,699        140,900   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other operating expense

     133,703        106,202        395,622        331,648   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     208,080        174,138        334,457        307,588   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (expense)

        

Interest expense, net

     (26,627     (47,196     (257,969     (142,271

Other income (expense)

     (626     1,644        1,168        2,730   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating income (expense)

     (27,253     (45,552     (256,801     (139,541
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income before income taxes

     180,827        128,586        77,656        168,047   

Income tax expense

     (7,933     (398     (11,177     (544
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     172,894        128,188        66,479        167,503   

Net income attributable to non-controlling interest

     2,036        —         857        —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Norwegian Cruise Line Holdings Ltd.

   $ 170,858      $ 128,188      $ 65,622      $ 167,503   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

        

Basic

     204,425,308        178,252,763        202,279,989        178,198,984   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     210,703,244        179,050,050        208,673,608        178,986,504   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

        

Basic

   $ 0.84      $ 0.72      $ 0.32      $ 0.94   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.82      $ 0.72      $ 0.32      $ 0.94   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Income

(unaudited, in thousands)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2012     2013     2012  

Net income

   $ 172,894      $ 128,188      $ 66,479      $ 167,503   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

        

Shipboard Retirement Plan

     117        98        351        294   

Cash flow hedges:

        

Net unrealized gain (loss)

     16,798        40,860        (12,619     15,110   

Amount realized and reclassified into earnings

     (1,539     (2,707     (3,623     (19,309
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     15,376        38,251        (15,891     (3,905
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     188,270        166,439        50,588        163,598   

Comprehensive income attributable to non-controlling interest

     2,233        —         445        —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to Norwegian Cruise Line Holdings Ltd.

   $ 186,037      $ 166,439      $ 50,143      $ 163,598   
  

 

 

   

 

 

   

 

 

   

 

 

 

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,
2013
    December 31,
2012
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 56,960      $ 45,500   

Accounts receivable, net

     17,717        15,062   

Inventories

     45,901        39,681   

Prepaid expenses and other assets

     66,473        64,686   
  

 

 

   

 

 

 

Total current assets

     187,051        164,929   

Property and equipment, net

     5,622,574        4,960,142   

Goodwill and tradenames

     611,330        611,330   

Other long-term assets

     184,594        202,026   
  

 

 

   

 

 

 

Total assets

   $ 6,605,549      $ 5,938,427   
  

 

 

   

 

 

 

Liabilities and shareholders’ equity

    

Current liabilities:

    

Current portion of long-term debt

   $ 282,564      $ 221,233   

Accounts payable

     98,559        79,126   

Accrued expenses and other liabilities

     225,266        231,040   

Due to Affiliate

     36,815        59,897   

Advance ticket sales

     434,541        353,793   
  

 

 

   

 

 

 

Total current liabilities

     1,077,745        945,089   

Long-term debt

     2,830,477        2,764,120   

Due to Affiliate

     73,468        147,364   

Other long-term liabilities

     48,971        63,070   
  

 

 

   

 

 

 

Total liabilities

     4,030,661        3,919,643   
  

 

 

   

 

 

 

Commitments and contingencies (Note 8)

    

Shareholders’ equity:

    

Ordinary shares, $.001 par value; 490,000,000 shares authorized; 205,083,076 shares issued and outstanding at September 30, 2013, and $.0012 par value; 40,000,000 shares authorized; 21,000,000 shares issued and outstanding at December 31, 2012

     205        25   

Additional paid-in capital

     2,819,153        2,327,097   

Accumulated other comprehensive income (loss)

     (33,098     (17,619

Retained earnings (deficit)

     (233,563     (299,185
  

 

 

   

 

 

 

Total shareholders’ equity controlling interest

     2,552,697        2,010,318   

Non-controlling interest

     22,191        8,466   
  

 

 

   

 

 

 

Total shareholders’ equity

     2,574,888        2,018,784   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 6,605,549      $ 5,938,427   
  

 

 

   

 

 

 

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,
 
     2013     2012  

Cash flows from operating activities

    

Net income

   $ 66,479      $ 167,503   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization expense

     180,143        160,781   

Gain on derivatives

     (195     (2,067

Deferred income taxes, net

     11,026        —    

Write-off of deferred financing fees

     36,357        2,358   

Share-based compensation expense

     21,283        495   

Premium on debt issuance

     —         6,000   

Changes in operating assets and liabilities:

    

Accounts receivable, net

     (2,655     (4,649

Inventories

     (6,220     (6,941

Prepaid expenses and other assets

     (1,558     375   

Accounts payable

     19,433        (13,393

Accrued expenses and other liabilities

     (5,480     27,312   

Advance ticket sales

     79,730        38,749   
  

 

 

   

 

 

 

Net cash provided by operating activities

     398,343        376,523   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Additions to property and equipment and other

     (835,765     (229,855
  

 

 

   

 

 

 

Net cash used in investing activities

     (835,765     (229,855
  

 

 

   

 

 

 

Cash flows from financing activities

    

Repayments of long-term debt

     (2,229,821     (718,255

Repayments to Affiliate

     (98,171     —    

Proceeds from long-term debt

     2,359,310        584,990   

Proceeds from the issuance of ordinary shares, net

     473,017        —    

Proceeds from the exercise of stock options

     1,268        —    

Deferred financing fees and other

     (56,721     (3,635
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     448,882        (136,900
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     11,460        9,768   

Cash and cash equivalents at beginning of period

     45,500        58,926   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 56,960      $ 68,694   
  

 

 

   

 

 

 

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)

 

     Ordinary
Shares
     Additional
Paid-in
Capital
    Accumulated
Other
Comprehensive
Income (Loss)
    Retained Earnings
(Deficit)
    Non-controlling
Interest
    Total  

Balance, December 31, 2011

   $ 25       $ 2,324,167      $ (19,794   $ (467,741   $ 7,806      $ 1,844,463   

Share-based compensation

     —           —          —          —          495        495   

Transactions with Affiliates, net

     —           2,956        —          —          —          2,956   

Other comprehensive loss

     —           —          (3,905     —          —          (3,905

Net income

     —           —          —          167,503        —          167,503   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2012

   $ 25       $ 2,327,123      $ (23,699   $ (300,238   $ 8,301      $ 2,011,512   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2012

   $ 25       $ 2,327,097      $ (17,619   $ (299,185   $ 8,466      $ 2,018,784   

Share-based compensation

     —           31,264        —          —          19        31,283   

Transactions with Affiliates, net

     —           (52     —          —          —          (52

Corporate Reorganization

     —           (18,994     —          —          18,994        —     

Proceeds from the issuance of ordinary shares, net

     179         472,838        —          —          —          473,017   

Proceeds from the exercise of stock options

     1        1,267        —          —          —          1,268   

Other comprehensive loss

     —           —          (15,479     —          (412     (15,891

Net income

     —           —          —          65,622        857        66,479   

Vesting of Management NCL Corporation Units, net of exchanges

     —           5,733        —          —          (5,733     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2013

   $ 205       $ 2,819,153      $ (33,098   $ (233,563   $ 22,191      $ 2,574,888   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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,” “us” and “NCLH” refer to Norwegian Cruise Line Holdings Ltd., and/or its subsidiaries, (ii) “NCLC” refers to NCL Corporation Ltd. and/or its subsidiaries, (iii) “Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and its predecessors, (iv) “Apollo” refers to Apollo Global Management, LLC and its subsidiaries and the “Apollo Funds” refers to one or more of AIF VI NCL (AIV), L.P., AIF VI NCL (AIV II), L.P., AIF VI NCL (AIV III), L.P., AIF VI NCL (AIV IV), L.P., AAA Guarantor-Co-Invest VI (B), L.P., Apollo Overseas Partners (Delaware) VI, L.P., Apollo Overseas Partners (Delaware 892) VI, L.P., Apollo Overseas Partners VI, L.P. and Apollo Overseas Partners (Germany) VI, L.P., (v) “TPG Global” refers to TPG Global, LLC, “TPG” refers to TPG Global and its affiliates and the “TPG Viking Funds” refers to one or more of TPG Viking, L.P., TPG Viking AIV I, L.P., TPG Viking AIV II, L.P., and TPG Viking AIV III, L.P. and/or certain other affiliated investment funds, each an affiliate of TPG, (vi) “Genting HK” refers to Genting Hong Kong Limited and/or its affiliates and (vii) “Affiliate(s)” or “Sponsor(s)” refers to Genting HK, the Apollo Funds and/or the TPG Viking Funds. References to “U.S.” are to the United States of America, “U.K.” are to the United Kingdom, “dollars” or “$” are to U.S. dollars and “euros” or “€” are to the official currency of the Eurozone.

 

1. Corporate Reorganization

In January 2013, NCLH completed the IPO of 27,058,824 ordinary shares, par value $.001 per share. In connection with the consummation of the IPO, NCLC’s ordinary shares were exchanged for the ordinary shares of NCLH, and NCLH became the owner of 100% of the ordinary shares (representing a 97.3% economic interest) and parent company of NCLC (the “Corporate Reorganization”). Accordingly, NCLH contributed $460.0 million to NCLC and the historical financial statements of NCLC became those of NCLH. As a result of the Corporate Reorganization, the Management NCL Corporation Units created a non-controlling interest within NCLH. The Corporate Reorganization was effected solely for the purpose of reorganizing our corporate structure. NCLH had not, prior to the completion of the Corporate Reorganization, conducted any activities other than those incidental to its formation and to preparations for the Corporate Reorganization and the IPO (we refer you to Note 5—“Related Party Disclosures” for more information on the Corporate Reorganization).

 

2. Summary of Significant Accounting Policies

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 summer months. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012, which are included in our most recently filed Annual Report on Form 10-K.

Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to Norwegian Cruise Line Holdings Ltd. by the weighted-average shares outstanding during each period. Diluted earnings per share incorporates the incremental shares issuable upon conversion of potentially dilutive shares and is computed by dividing net income by the diluted weighted-average shares outstanding during each period. A reconciliation between basic and diluted earnings per share was as follows (in thousands, except share and per share data):

 

     Three Months Ended
September 30,
     Nine Months Ended September 30,  
     2013      2012      2013      2012  

Net income attributable to Norwegian Cruise Line Holdings Ltd.

   $ 170,858       $ 128,188       $ 65,622       $ 167,503   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 172,894       $ 128,188       $ 66,479       $ 167,503   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted-average shares outstanding

     204,425,308         178,252,763         202,279,989         178,198,984   

Dilutive effect of awards

     6,277,936         797,287         6,393,619         787,520   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted-average shares outstanding

     210,703,244         179,050,050         208,673,608         178,986,504   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 0.84       $ 0.72       $ 0.32       $ 0.94   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 0.82       $ 0.72       $ 0.32       $ 0.94   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Revenue and Expense Recognition

Revenue and expense includes taxes assessed by governmental authorities that are directly imposed on a revenue-producing transaction between a seller and a customer. The amounts included in revenue and expense on a gross basis were $44.4 million and $37.4 million for the three months ended September 30, 2013 and 2012, respectively, and $111.9 million and $104.0 million for the nine months ended September 30, 2013 and 2012, respectively.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” Significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification shall be disclosed in a note to the consolidated financial statements or presented parenthetically on the face of the financial statements (we refer you to Note 3— “Accumulated Other Comprehensive Income (Loss)”).

We have adopted the disclosure requirements as presented in the amendment to subtopic 210-20 “Disclosures about Offsetting Assets and Liabilities” which requires that we disclose separately for assets and liabilities the gross recognition and the offsetting amounts which are permitted by our master netting arrangements for our derivative contracts (we refer you to Note 7— “Fair Value Measurements and Derivatives”).

 

3. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) for the nine months ended September 30, 2013 was as follows (in thousands):

 

     Accumulated
Other
Comprehensive
Income (Loss)
    Change
Related to
Cash Flow
Hedges
    Change
Related to
Shipboard
Retirement
Plan
 

Accumulated other comprehensive income (loss) at beginning of period

   $ (17,619   $ (7,872   $ (9,747

Current period other comprehensive loss before reclassifications

     (12,292     (12,292     —    

Amounts reclassified

     (3,187     (3,529 )(1)      342 (2) 
  

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive income (loss) at end of period

   $ (33,098   $ (23,693 )(3)    $ (9,405
  

 

 

   

 

 

   

 

 

 

 

(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 payroll and related expense.
(3) Of the existing amounts related to derivatives designated as cash flow hedges, $1.8 million of income is expected to be reclassified into earnings in the next 12 months.

 

4. Long-Term Debt

On June 21, 2013, NCLC and certain of its subsidiaries entered into supplemental deeds to the $334.1 million Norwegian Jewel loan, Breakaway/Getaway Term Loan Facilities, €258.0 million Pride of America loan, and €308.1 million Pride of Hawai’i loan. The supplemental deeds amended and restated those credit facilities, reducing the interest rate per annum to a rate equal to the sum of (a) an adjusted LIBOR rate, (b) an applicable margin of 0.95% and (c) certain customary mandatory costs to compensate lenders for the cost of compliance with various financial regulations. In connection with these amendments, we terminated the €40.0 million secured loan agreement, dated as of April 4, 2003, as amended and restated on June 1, 2012, by and among Pride of America Ship Holding, LLC, as borrower, and a syndicate of international banks, and related guarantee by NCLC which had an aggregate outstanding principal balance thereunder of $16.8 million.

On May 24, 2013, NCLC entered into a credit agreement which provides senior secured financing of $1.3 billion, consisting of (i) a $675 million term loan facility maturing on May 24, 2018 (the “Term Loan Facility”), all of which was borrowed for the purpose of

 

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refinancing existing senior debt; and (ii) a $625 million revolving credit facility maturing on May 24, 2018 (the “Revolving Loan Facility” and together with the Term Loan Facility, the “new senior secured credit facilities”), $117.0 million of which was borrowed as of September 30, 2013.

Borrowings under the new senior secured credit facilities bear interest at a rate per annum equal to (a) an adjusted LIBOR rate or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate of Deutsche Bank and (iii) the adjusted LIBOR rate, in each case plus an applicable margin that is determined by reference to a total leverage ratio, with an applicable margin of between 2.25% and 1.50% with respect to Eurocurrency loans and between 1.25% and 0.50% with respect to base rate loans. The initial applicable margin for borrowings is 2.25% with respect to Eurocurrency borrowings and 1.25% with respect to base rate borrowings.

In addition to paying interest on outstanding principal under the new senior secured credit facilities, a commitment fee rate is determined by reference to a total leverage ratio, with a maximum commitment fee rate of 40% of the applicable margin for Eurocurrency loans.

The Term Loan Facility will be paid in quarterly installments which commenced in September 2013, in a principal amount equal to (a) in the case of installments payable on or prior to May 24, 2015, 1.25% of the loans outstanding immediately after the closing date under the Term Loan Facility and (b) in the case of installments payable after May 24, 2015, 2.50% of the loans outstanding immediately after the closing date under the Term Loan Facility, with the remaining unpaid principal amount of loans under the Term Loan Facility due and payable in full at maturity on May 24, 2018. Principal amounts outstanding under the Revolving Loan Facility are due and payable in full at maturity on May 24, 2018.

In connection with the entry into the new senior secured credit facilities, the $750.0 million Senior Secured Revolving Credit Facility and the €624.0 million Norwegian Pearl and Norwegian Gem Revolving Credit Facility were terminated. In addition, the $227.5 million remaining balance of our 9.50% senior unsecured notes, plus premium and accrued and unpaid interest, was redeemed in full on June 28, 2013.

In April 2013, we took delivery of Norwegian Breakaway. To finance the payment due upon delivery, we drew $528.0 million of our €529.8 million Breakaway One Loan which is due April 2025. Also, we drew an aggregate of $57.7 million of our €126.1 million Norwegian Jewel Term Loan and €126.1 million Norwegian Jade Term Loan which will come due April 2016. The loans bear interest at LIBOR plus 1.6%.

In February 2013, NCLC issued $300.0 million aggregate principal amount of senior unsecured notes bearing interest at a rate of 5% per annum and maturing on February 15, 2018 (the “Notes Offering”). Interest on the notes will be payable semiannually on February 15 and August 15 of each year, which commenced on August 15, 2013. The notes were issued at 99.451%.

We used the net proceeds that we received from the IPO and the Notes Offering, aggregating approximately $770.0 million, to pay down debt, including; (i) a prepayment of an aggregate $55.6 million that became payable upon the consummation of the IPO consisting of $21.3 million on our €624.0 million Norwegian Pearl and Norwegian Gem Revolving Credit Facility, $14.7 million on our €308.1 million Pride of Hawai’i loan, $8.0 million on our $334.1 million Norwegian Jewel loan, $10.1 million on our €258.0 million Pride of America loan and $1.5 million on our €40.0 million Pride of America commercial loan, (ii) a payment to Genting HK of $79.7 million in connection with the Norwegian Sky purchase agreement, (iii) a full redemption of our $450.0 million 11.75% senior secured notes due 2016 and (iv) a partial redemption of $122.5 million aggregate principal amount of our 9.50% senior unsecured notes. Expenses related to these debt prepayments were approximately $90.5 million and were recognized in interest expense.

 

5. Related Party Disclosures

Following the IPO, NCLH contributed $460.0 million to NCLC. The relative ownership percentages of NCLH’s ordinary shares following the IPO were as follows: Genting HK (43.4%), the Apollo Funds (32.5%), the TPG Viking Funds (10.8%) and public shareholders (13.3%). We also made payments of $98.2 million to Genting HK in connection with the Norwegian Sky purchase agreement.

In August 2013, we had our Secondary Offering by the Selling Shareholders. We did not receive any proceeds from this offering. As of September 30, 2013, the relative ownership percentages of NCLH’s ordinary shares were as follows: Genting HK (37.5%), the Apollo Funds (28.1%), the TPG Viking Funds (9.4%), and public shareholders (25.0%). As of September 30, 2013, NCLH had a (97.7%) economic interest in NCLC.

 

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6. Income Tax Expense

NCLH is treated as a corporation for U.S. federal income tax purposes. For the three and nine months ended September 30, 2013, income tax expense was $7.9 million and $11.2 million, respectively. Income tax expense for the nine months includes a one-time expense of $4.2 million due to a change in U.S. tax status from a partnership to a corporation in connection with our IPO and a benefit of $2.6 million in connection with our prepayments of debt.

In September 2013, we commenced the implementation of a global tax platform. The implementation of this new platform is expected to be completed by December 31, 2013 and, accordingly, its effect has been included as a reduction of $6.6 million to income tax expense for the three and nine months ended September 30, 2013.

 

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).

Fair Value Hierarchy

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

 

Level 1    Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement dates.
Level 2    Significant other observable inputs that are used by market participants in pricing the asset or liability based on market data obtained from independent sources.
Level 3    Significant unobservable inputs we believe market participants would use in pricing the asset or liability based on the best information available.

Derivatives

We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We attempt to minimize these risks through a combination of our normal operating and financing activities and through the use of derivatives. We assess whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the cash flow of our hedged forecasted transactions. We use regression analysis for this hedge relationship and high effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the fair values of the derivative and the hedged forecasted transaction. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction. The determination of ineffectiveness is based on the amount of dollar offset between the cumulative change in fair value of the derivative and the cumulative change in fair value of the hedged transaction at the end of the reporting period. If it is determined that a derivative is not highly effective as a hedge, or if the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other comprehensive income (loss) is released to earnings. In addition, the ineffective portion of our highly effective hedges is recognized in earnings immediately and reported in other income (expense) in our consolidated statements of operations. There are no amounts excluded from the assessment of hedge effectiveness and there are no credit-risk-related contingent features in our derivative agreements.

 

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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 and our revolving credit facility, is not considered significant, as we primarily conduct business with large, well-established financial institutions that we have established relationships with and that have credit risks acceptable to us or the credit risk is spread out among a large number of creditors. We do not anticipate non-performance by any of our significant counterparties. The following table sets forth the fair value of our derivatives including the balance sheet location (in thousands):

 

          Asset      Liability  
    

Balance Sheet location

   September 30,
2013
     December 31,
2012
     September 30,
2013
     December 31,
2012
 

Fuel swaps designated as hedging instruments

     
  

Prepaid expenses and other assets

   $ 4,421       $ 5,955       $ 484       $ 876   
  

Other long-term assets

     2,201         3,969         1,890        388   
  

Accrued expenses and other liabilities

     669         188         938         204   
  

Other long-term liabilities

     189         391         180         42   

Fuel collars designated as hedging instruments

        
  

Prepaid expenses and other assets

     614         1,615         322         530   
  

Accrued expenses and other liabilities

     —           51         —           69   
  

Other long-term liabilities

     207         1,908         202         1,230   

Fuel options not designated as hedging instruments

              
  

Prepaid expenses and other assets

     —           —           322         304   
  

Other long-term liabilities

     —           —           202         1,231   

Foreign currency options designated as hedging instruments

              
  

Accrued expenses and other liabilities

     —           —           18,756         20,267   
  

Other long-term liabilities

     —           —           —           16,443   

Foreign currency forward contracts designated as hedging instruments

              
  

Prepaid expenses and other assets

     —           11,685         —           —     

Foreign currency collar designated as a hedging instrument

              
  

Prepaid expenses and other assets

     10,425         —           30         —     
  

Other long-term assets

     —           9,765         —           1,613   

Interest rate swaps designated as hedging instruments

              
  

Accrued expenses and other liabilities

     —           —           898         —     
  

Other long-term liabilities

     —           —           2,233        —     

 

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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 and collar 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. We are not required to post cash collateral related to our derivative instruments. The following table discloses the amounts recognized within assets and liabilities (in thousands):

 

September 30, 2013

   Gross Amounts      Gross
Amounts
Offset
    Total Net
Amounts
     Gross
Amounts Not
Offset
    Net Amounts  

Assets

   $ 17,661       $ (3,048   $ 14,613       $ —       $ 14,613   

Liabilities

     23,409         (1,065     22,344         (21,887     457   

December 31, 2012

   Gross Amounts      Gross
Amounts
Offset
    Total Net
Amounts
     Gross
Amounts Not
Offset
    Net Amounts  

Assets

   $ 32,989       $ (3,711   $ 29,278       $ (11,685   $ 17,593   

Liabilities

     39,486         (2,538     36,948         (36,710     238   

Fuel Swaps

As of September 30, 2013, we had fuel swaps maturing through December 31, 2016 which are used to mitigate the financial impact of volatility in fuel prices pertaining to approximately 745,000 metric tons of our projected fuel purchases. The effects on the consolidated financial statements of the fuel swaps which were designated as cash flow hedges were as follows (in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2012     2013     2012  

Gain recognized in other comprehensive loss – effective portion

   $ 13,500      $ 30,848      $ 132      $ 23,029   

Gain (loss) recognized in other income (expense) – ineffective portion

     (83     157        (182     (473

Amount reclassified from accumulated comprehensive income (loss) into fuel expense

     (2,081     (1,600     (5,080     (13,932

Fuel Collars and Options

As of September 30, 2013, we had fuel collars and fuel options maturing through December 31, 2014 which are used to mitigate the financial impact of volatility in fuel prices pertaining to approximately 43,000 metric tons of our projected fuel purchases. The effects on the consolidated financial statements of the fuel collars which were designated as cash flow hedges were as follows (in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2012     2013     2012  

Gain (loss) recognized in other comprehensive loss – effective portion

   $ 427      $ 5,060      $ (1,108   $ 2,441   

Gain (loss) recognized in other income (expense) – ineffective portion

     (51     479        (29     142   

Amount reclassified from other comprehensive income (loss) into fuel expense

     332        (1,107     1,150        (5,377

 

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The effects on the consolidated financial statements of the fuel options which were not designated as hedging instruments were as follows (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  

Gain recognized in other income (expense)

   $ 430      $ 1,143       $ 1,011       $ 2,858   

Foreign Currency Forward Contracts

We had foreign currency forward contracts which matured in April 2013. The effects on the consolidated financial statements of the foreign currency forward contracts which were designated as cash flow hedges were as follows (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013     2012      2013     2012  

Gain (loss) recognized in other comprehensive loss – effective portion

   $ —        $ 2,609       $ (7,886   $ 4,332   

Gain recognized in other income (expense) – ineffective portion

     —          —           66        —     

Amount reclassified from accumulated comprehensive income (loss) into depreciation and amortization expense

     (32 )     —           (52     —     

As of September 30, 2013, the effects on the consolidated financial statements of the foreign currency forward contracts which were not designated as hedging instruments were as follows (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  

Gain recognized in other income (expense)

   $ —         $ —         $ 20       $ —     

Foreign Currency Options

As of September 30, 2013, we had foreign currency derivatives consisting of call options with deferred premiums which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. If the spot rate at the date the ships are delivered is less than the strike price under these option contracts, we would pay the deferred premium and not exercise the foreign currency options. The notional amount of our foreign currency options was €175.0 million, or $236.7 million based on the euro/U.S. dollar exchange rate as of September 30, 2013. The effects on the consolidated financial statements of the foreign currency options which were designated as cash flow hedges were as follows (in thousands):

 

     Three Months
Ended
September 30,
    Nine Months Ended
September 30,
 
     2013      2012     2013     2012  

Gain (loss) recognized in other comprehensive loss – effective portion

   $ 1,179       $ (2,813   $ (3,174   $ (19,848

Gain (loss) recognized in other income (expense) – ineffective portion

     13         (134     (307     (484

Amount reclassified from accumulated comprehensive income (loss) into depreciation and amortization expense

     177         —          294        —     

 

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Foreign Currency Collar

As of September 30, 2013, we had a foreign currency collar used to mitigate the volatility of foreign currency exchange rates related to our ship construction contracts denominated in euros. The notional amount of our foreign currency collar was €100.0 million, or $135.3 million based on the euro/U.S. dollar exchange rate as of September 30, 2013. The effects on the consolidated financial statements of the foreign currency collar which was designated as a cash flow hedge was as follows (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  

Gain recognized in other comprehensive income – effective portion

   $ 4,518       $ 5,156      $ 2,243       $ 5,156  

Interest Rate Swaps

As of September 30, 2013, we had interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense. The notional amount of outstanding debt associated with the interest rate swap agreements was $705.8 million. The effects on the consolidated financial statements of the interest rates swaps which were designated as cash flow hedges were as follows (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013     2012      2013     2012  

Loss recognized in other comprehensive loss – effective portion

   $ (2,826   $ —         $ (2,826   $ —     

Loss recognized in other income (expense) – ineffective portion

     (334     —           (334     —     

Amount reclassified from other comprehensive income (loss) into interest expense, net

     65        —           65        —     

Long-Term Debt

As of September 30, 2013 and December 31, 2012, the fair value of our long-term debt, including the current portion, was $3,105.0 million and $3,106.9 million, which was $8.0 million lower and $121.5 million higher, respectively, than the carrying values. The difference between the fair value and carrying value of our long-term debt is due to our fixed and variable rate debt obligations carrying interest rates that are above or below market rates at the measurement dates. The fair value of our long-term debt was calculated based on estimated rates for the same or similar instruments with similar terms and remaining maturities. The calculation of the fair value of our long-term debt is considered a Level 2 input.

Other

The carrying amounts reported in the consolidated balance sheets of all financial assets and liabilities other than our long-term debt approximate fair value.

 

8. Commitments and Contingencies

Ship Construction Contracts

Norwegian Getaway is under construction with Meyer Werft and is scheduled for delivery in January 2014. This ship will be approximately 144,000 Gross Tons with 4,000 Berths at an aggregate cost of approximately €627.7 million, or $849.1 million based on the euro/U.S. dollar exchange rate as of September 30, 2013. We have export credit financing in place that provides financing for 90% of its contract price.

We also have orders with Meyer Werft for two additional ships for delivery in the fourth quarter of 2015 and the first quarter of 2017. These ships, Norwegian Escape and Norwegian Bliss, will be the largest in our fleet at approximately 163,000 Gross Tons with 4,200 Berths each and will be similar in design and innovation to our Breakaway Class Ships. The combined contract cost of these two additional ships is approximately €1.4 billion, or $1.9 billion based on the euro/U.S. dollar exchange rate as of September 30, 2013. We have export credit financing in place that provides financing for 80% of their contract price.

In connection with the contracts to build the ships, we do not anticipate any contractual breaches or cancellation to occur. However, if any would occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.

Litigation

In July 2009, a class action complaint was filed against NCL (Bahamas) Ltd. in the United States District Court, Southern District of Florida, on behalf of a purported class of crew members alleging inappropriate deductions of their wages pursuant to the Seaman’s Wage Act and wrongful termination resulting in a loss of retirement benefits. In December 2010, the Court denied the plaintiffs’ Motion for Class Certification. In February 2011, the plaintiffs filed a Motion for Reconsideration as to the Court’s Order on Class

 

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Certification which was denied. The Court tried six individual plaintiffs’ claims, and in September 2012 awarded wages aggregating approximately $100,000 to such plaintiffs. In October 2013, the United States Court of Appeals for the Eleventh Circuit affirmed the Court’s rulings as to the denial of class certification and the trial verdict. We intend to continue to vigorously defend this action and are not able at this time to estimate the impact of these proceedings.

In May 2011, a class action complaint was filed against NCL (Bahamas) Ltd. in the United States District Court, Southern District of Florida, on behalf of a purported class of crew members alleging inappropriate deductions of their wages pursuant to the Seaman’s Wage Act and breach of contract. In July 2012, this action was stayed by the Court pending the outcome of the litigation commenced with the class action complaint filed in July 2009. We are vigorously defending this action and are not able at this time to estimate the impact of these proceedings.

In the normal course of our business, various other claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability is typically limited to our deductible amount. Nonetheless, the ultimate outcome of these claims and lawsuits that are not covered by insurance cannot be determined at this time. We have evaluated our overall exposure with respect to all of our threatened and pending litigation and, to the extent required, we have accrued amounts for all estimable probable losses associated with our deemed exposure. We are currently unable to estimate any other potential contingent losses beyond those accrued, as discovery is not complete nor is adequate information available to estimate such range of loss or potential recovery. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Concerning Forward-Looking Statements

Certain statements in this report constitute forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts in this report, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects and objectives of management for future operations (including development plans and objectives relating to our activities), are forward-looking statements. Many, but not all of these statements can be found by looking for words like “expect,” “anticipate,” “goal,” “project,” “plan,” “believe,” “seek,” “will,” “may,” “forecast,” “estimate,” “intend” and “future” and for similar words. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to:

 

    the adverse impact of the worldwide economic downturn and related factors such as high levels of unemployment and underemployment, declines in the securities and real estate markets, and perceptions of these conditions that decrease the level of disposable income of consumers or consumer confidence;

 

    changes in cruise capacity, as well as capacity changes in the overall vacation industry;

 

    intense competition from other cruise companies as well as non-cruise vacation alternatives which may affect our ability to compete effectively;

 

    our substantial leverage, including the inability to generate the necessary amount of cash to service our existing debt, repay our credit facilities if payment is accelerated and incur substantial indebtedness in the future;

 

    changes in fuel prices or other cruise operating costs;

 

    the risks associated with operating internationally, including changes in interest rates and/or foreign currency rates;

 

    the continued borrowing availability under our credit facilities and compliance with our financial covenants;

 

    our ability to incur significantly more debt despite our substantial existing indebtedness;

 

    the impact of volatility and disruptions in the global credit and financial markets which may adversely affect our ability to borrow and could increase our counterparty credit risks, including those under our credit facilities, derivatives, contingent obligations, insurance contracts and new ship progress payment guarantees;

 

    adverse events impacting the security of travel that may affect consumer demand for cruises such as terrorist acts, acts of piracy, armed conflict and other international events;

 

    the impact of any future changes relating to how travel agents sell and market our cruises;

 

    the impact of any future increases in the price of, or major changes or reduction in, commercial airline services;

 

    the impact of delays, costs and other factors resulting from emergency ship repairs as well as scheduled repairs, maintenance and refurbishment of our ships;

 

    the delivery schedules and estimated costs of new ships on terms that are favorable or consistent with our expectations;

 

    the impact of problems encountered at shipyards, as well as, any potential claim, impairment loss, cancellation or breach of contract in connection with our contracts with shipyards;

 

    the impact of the spread of contagious diseases;

 

    accidents and other incidents affecting the health, safety, security and vacation satisfaction of guests or causing damage to ships, which could cause the modification of itineraries or cancellation of a cruise or series of cruises;

 

    our ability to obtain insurance coverage on terms that are favorable or consistent with our expectations;

 

    the impact of any breaches in data security or other disturbances to our information technology and other networks;

 

    the continued availability of attractive port destinations;

 

    the impact of weather and natural disasters;

 

    our ability to attract and retain key personnel and qualified shipboard crew, maintain good relations with employee unions, maintain or renegotiate our collective bargaining agreements on favorable terms and prevent any disruptions in work;

 

    the control of our Company by our Sponsors whose interests may not continue to be aligned with ours;

 

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    changes involving the tax, environmental, health, safety, security and other regulatory regimes in which we operate;

 

    increases in our future fuel expenses related to implementing IMO regulations, which require the use of higher priced low sulfur fuels in certain cruising areas;

 

    the implementation of regulations in the U.S. requiring U.S. citizens to obtain passports for travel to additional foreign destinations;

 

    the impact of pending or threatened litigation and investigations; and

 

    other factors set forth under “Risk Factors.”

The above examples are not exhaustive and new risks emerge from time to time. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking statements are based on our current beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment in which we will operate in the future. These forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based.

The interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2012, which are included in our most recently filed Annual Report on Form 10-K.

Terminology

For a reconciliation of our non-GAAP financial measures we refer you to “Results of Operations.” Unless otherwise indicated in this report, the following terms have the meanings set forth below:

 

    $750.0 million Senior Secured Revolving Credit Facility. $750.0 million credit agreement, dated October 28, 2009, as amended, by and among NCL Corporation Ltd., as borrower, various lenders and Nordea Bank Norge ASA, and related guarantee by Norwegian Dawn Limited, Norwegian Sun Limited, Norwegian Spirit, Ltd. and Norwegian Star Limited, which was terminated in connection with our entry into the new senior secured credit facilities.

 

    $334.1 million Norwegian Jewel loan. $334.1 million secured loan agreement, dated as of April 20, 2004, as amended and restated on June 21, 2013, by and among Norwegian Jewel Limited, as borrower, and a syndicate of international banks, and related guarantee by NCLC.

 

    €126.1 million Norwegian Jade Term Loan. €126.1 million Pride of Hawai’i Credit Agreement, dated November 18, 2010, as amended and restated on June 21, 2013, by and among Pride of Hawaii LLC and a syndicate of international banks and a related guarantee by NCL Corporation Ltd.

 

    €126.1 million Norwegian Jewel Term Loan. €126.1 million Norwegian Jewel Credit Agreement, dated November 18, 2010, as amended and restated on June 21, 2013, by and among Norwegian Jewel Limited and a syndicate of international banks and a related guarantee by NCL Corporation Ltd.

 

    €258.0 million Pride of America loan. Euro 258.0 million secured loan agreement, dated as of April 4, 2003, as amended and restated on June 21, 2013, by and among Pride of America Ship Holding, LLC, as borrower, and a syndicate of international banks, and related guarantee by NCL Corporation Ltd.

 

    €308.1 million Pride of Hawai’i loan. Euro 308.1 million Pride of Hawai’i loan, dated as of April 20, 2004, as amended and restated on June 21, 2013, by and among Pride of Hawaii, LLC, as borrower, and a syndicate of international banks, and related guarantee by NCL Corporation Ltd.

 

    €529.8 million Breakaway One Loan. €529.8 million Breakaway One credit agreement, dated November 18, 2010, as amended, by and among Breakaway One, Ltd., as borrower, and a syndicate of international banks and a related guarantee by NCL Corporation Ltd.

 

    €624.0 million Norwegian Pearl and Norwegian Gem Revolving Credit Facility. Euro 624.0 million revolving loan facility agreement, dated October 7, 2005, as amended and restated on June 1, 2012, by and among NCL Corporation Ltd., as borrower, and a syndicate of international banks, and related guarantee by Norwegian Pearl, Ltd. and Norwegian Gem, Ltd., which was terminated in connection with our entry into the new senior secured credit facilities.

 

    Adjusted EBITDA. EBITDA adjusted for other income (expense) and other supplemental adjustments.

 

    Adjusted EPS. Diluted earnings (loss) per share adjusted for supplemental adjustments.

 

    Adjusted Net Cruise Cost Excluding Fuel. Net Cruise Cost less fuel expense adjusted for supplemental adjustments.

 

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    Adjusted Net Income. Net income adjusted for supplemental adjustments.

 

    Berths. Double occupancy capacity per cabin (single occupancy per studio cabin) even though many cabins can accommodate three or more passengers.

 

    Breakaway Class Ships. Norwegian Breakaway delivered in April 2013 and Norwegian Getaway scheduled for delivery in January 2014.

 

    Breakaway/Getaway Term Loan Facilities. €126.1 million Pride of Hawai’i Credit Agreement, dated November 18, 2010, as amended and restated on June 21, 2013, by and among Pride of Hawaii LLC and a syndicate of international banks and a related guarantee by NCL Corporation Ltd. and €126.1 million Norwegian Jewel Credit Agreement, dated November 18, 2010, as amended and restated on June 21, 2013, by and among Norwegian Jewel Limited and a syndicate of international banks and a related guarantee by NCL Corporation Ltd.

 

    Business Enhancement Capital Expenditures. Capital expenditures other than those related to new ship construction.

 

    Capacity Days. Available Berths multiplied by the number of cruise days for the period.

 

    Charter. The hire of a ship for a specified period of time.

 

    Constant Currency. A calculation whereby foreign currency-denominated revenue and expenses in a period are converted at the U.S. dollar exchange rate of a comparable period in order to eliminate the effects of the foreign exchange fluctuations.

 

    Dry-dock. A process whereby a ship is positioned in a large basin where all of the fresh/sea water is pumped out in order to carry out cleaning and repairs of those parts of a ship which are below the water line.

 

    EBITDA. Earnings before interest, taxes, depreciation and amortization.

 

    GAAP. Generally accepted accounting principles in the U.S.

 

    Gross Cruise Cost. The sum of total cruise operating expense and marketing, general and administrative expense.

 

    Gross Tons. A unit of enclosed passenger space on a cruise ship, such that one gross ton = 100 cubic feet or 2.831 cubic meters.

 

    Gross Yield. Total revenue per Capacity Day.

 

    IMO. International Maritime Organization, a United Nations agency that sets international standards for shipping.

 

    IPO. The initial public offering of 27,058,824 ordinary shares, par value $.001 per share, of NCLH, which was consummated on January 24, 2013.

 

    Management NCL Corporation Units. NCLC’s previously outstanding profits interests issued to management (or former management) of NCLC which have been converted into units in NCLC in connection with the Corporate Reorganization.

 

    Net Cruise Cost. Gross Cruise Cost less commissions, transportation and other expense and onboard and other expense.

 

    Net Cruise Cost Excluding Fuel. Net Cruise Cost less fuel expense.

 

    Net Revenue. Total revenue less commissions, transportation and other expense and onboard and other expense.

 

    Net Yield. Net Revenue per Capacity Day.

 

    Occupancy Percentage. The ratio of Passenger Cruise Days to Capacity Days. A percentage in excess of 100% indicates that three or more passengers occupied some cabins.

 

    Passenger Cruise Days. The number of passengers carried for the period, multiplied by the number of days in their respective cruises.

 

    ROI Capital Expenditures. Comprised of project-based capital expenditures which have a quantified return on investment.

 

    Secondary Offering. Public offering in August 2013 resulting in the sale of 23,000,000 ordinary shares by the Selling Shareholders.

 

    Selling Shareholders. The Apollo Funds, the TPG Viking Funds and Star NCLC Holdings Ltd. (“Star NCLC”). Genting HK owns NCLH’s ordinary shares indirectly through Star NCLC, its wholly-owned subsidiary.

 

    Shipboard Retirement Plan. An unfunded defined benefit pension plan for certain crew members which computes benefits based on years of service, subject to certain requirements.

 

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Non-GAAP Financial Measures

We use certain non-GAAP financial measures, such as Net Revenue, Net Yield, Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel and Adjusted EBITDA to enable us to analyze our performance. We utilize Net Revenue and Net Yield to manage our business on a day-to-day basis and believe that they are the most relevant measures of our revenue performance because they reflect the revenue earned by us net of significant variable costs. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance.

As our business includes the sourcing of passengers and deployment of vessels outside of North America, a portion of our revenue and expenses are denominated in foreign currencies, particularly euro and British Pound sterling, which are subject to fluctuations in currency exchange rates versus our reporting currency, the U.S. dollar. In order to monitor results excluding these fluctuations, we calculate certain non-GAAP measures on a Constant Currency basis whereby current period revenue and expenses denominated in foreign currencies are converted to U.S. dollars using currency exchange rates of the comparable period. We believe that presenting these non-GAAP measures on both a reported and Constant Currency basis is useful in providing a more comprehensive view of trends in our business.

We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance, is a factor in the evaluation of the performance of management and is the primary metric used in determining the Company’s performance incentive bonus paid to its employees. We believe that Adjusted EBITDA is a useful measure in determining the Company’s performance as it reflects certain operating drivers of the Company’s business, such as sales growth, operating costs, marketing, general and administrative expense and other operating income and expense. Adjusted EBITDA is not a defined term under GAAP. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or measures comparable to net income as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments and it includes other supplemental adjustments.

In addition, Adjusted Net Income and Adjusted EPS are supplemental financial measures used to demonstrate GAAP net income and EPS excluding certain charges. We use Adjusted Net Income and Adjusted EPS as key performance measures of our earnings performance, and we believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparison to our historical performance. These charges vary from period to period; thus, our presentation of Adjusted Net Income and Adjusted EPS may not be indicative of future adjustments or results.

You are encouraged to evaluate each adjustment used in calculating our non-GAAP financial measures and the reasons we consider our non-GAAP financial measures appropriate for supplemental analysis. In evaluating our non-GAAP financial measures, you should be aware that in the future we may incur expenses similar to the adjustments in our presentation. Our non-GAAP financial measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of our non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our non-GAAP financial measures may not be comparable to other companies. Please see a historical reconciliation of these measures to items in our consolidated financial statements below in the “Results of Operations” section.

Financial Presentation

Revenue from our cruise and cruise-related activities are categorized by us as “passenger ticket revenue” and “onboard and other revenue.” Passenger ticket revenue and onboard and other revenue vary according to the size of the ship in operation, the length of cruises operated and the markets in which the ship operates. Our revenue is seasonal based on demand for cruises, which has historically been strongest during the summer months.

Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, and includes revenue for service charges and air and land transportation to and from the ship to the extent passengers purchase these items from us.

Onboard and other revenue primarily consists of revenue from gaming, beverage sales, specialty dining, shore excursions, retail sales and spa services. We record onboard revenue from onboard activities we perform directly or that are performed by independent concessionaires, from which we receive a share of their revenue.

Our cruise operating expense is classified as follows:

 

    Commissions, transportation and other primarily consists of direct costs associated with passenger ticket revenue. These costs include travel agent commissions, air and land transportation expenses, related credit card fees, costs associated with service charges and certain port expenses.

 

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    Onboard and other primarily consists of direct costs that are incurred in connection with onboard and other revenue. These include costs incurred in connection with shore excursions, beverage sales and gaming.

 

    Payroll and related consists of the cost of wages and benefits for shipboard employees.

 

    Fuel includes fuel costs, the impact of certain fuel hedges and fuel delivery costs.

 

    Food consists of food costs for passengers and crew.

 

    Other consists of repairs and maintenance (including Dry-dock costs), ship insurance, Charter costs and other ship expenses.

Executive Quarterly Overview

In August 2013, we had our Secondary Offering by the Selling Shareholders. We did not receive any proceeds from this offering.

In July 2013, we confirmed an order with Meyer Werft for the construction of Norwegian Bliss which is scheduled to be delivered in the first quarter of 2017. Together with Norwegian Escape, which is to be delivered in the fourth quarter of 2015, these new ships will be the largest in our fleet at approximately 163,000 Gross Tons with 4,200 Berths each and will be similar in design and innovation to our Breakaway Class Ships. The combined contract cost of these two ships is approximately €1.4 billion, or $1.9 billion based on the euro/U.S. dollar exchange rate as of September 30, 2013. We have export credit financing in place for these two ships that provides financing for 80% of their contract price.

For the third quarter of 2013, we reported Adjusted Net Income of $182.2 million and Adjusted EPS of $0.86, which excludes $4.1 million of expenses related to non-cash compensation and $5.2 million of expenses incurred from a change in corporate entity structure and our Secondary Offering. On a GAAP basis, net income attributable to Norwegian Cruise Line Holdings Ltd. and diluted earnings per share were $170.9 million and $0.82, respectively.

Three months ended September 30, 2013 (“2013”) compared to the three months ended September 30, 2012 (“2012”)

Total revenue increased 18.3% to $797.9 million in 2013 compared to $674.4 million in 2012. Net Revenue in 2013 increased 19.6% to $596.1 million from $498.4 million in 2012 due to an increase in Capacity Days of 14.9% primarily due to the delivery of Norwegian Breakaway in April 2013 and an increase in Net Yield of 4.1%.

Operating income in 2013 was $208.1 million compared to $174.1 million in 2012 and Adjusted EBITDA (we refer you to our “Results of Operations” below for a calculation of Adjusted EBITDA) improved 21.2% for the same period.

 

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Results of Operations

The following table sets forth operating data as a percentage of total revenue:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2012     2013     2012  

Revenue

        

Passenger ticket

     73.2     72.7     71.1     70.9

Onboard and other

     26.8     27.3     28.9     29.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Cruise operating expense

        

Commissions, transportation and other

     17.6     18.1     17.6     18.1

Onboard and other

     7.7     8.0     7.8     7.7

Payroll and related

     11.4     10.8     12.6     12.4

Fuel

     9.7     10.3     11.4     11.7

Food

     4.7     4.8     5.1     5.4

Other

     6.1     6.4     8.4     8.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cruise operating expense

     57.2     58.4     62.9     64.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Other operating expense

        

Marketing, general and administrative

     9.7     8.6     12.0     10.8

Depreciation and amortization

     7.0     7.2     8.1     7.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other operating expense

     16.7     15.8     20.1     18.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     26.1     25.8     17.0     17.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (expense)

        

Interest expense, net

     (3.3 )%      (7.0 )%      (13.1 )%      (8.0 )% 

Other income (expense)

     (0.1 )%      0.2     —       0.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating income (expense)

     (3.4 )%      (6.8 )%      (13.1 )%      (7.9 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income before income taxes

     22.7     19.0     3.9     9.4

Income tax expense

     (1.0 )%      —       (0.6 )%      —  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     21.7     19.0     3.3     9.4

Net income attributable to non-controlling interest

     0.3     —       —      —  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Norwegian Cruise Line Holdings Ltd.

     21.4     19.0     3.3     9.4
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth selected statistical information:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2012     2013     2012  

Passengers carried

     449,615        402,231        1,223,271        1,160,241   

Passenger Cruise Days

     3,170,169        2,727,697        8,461,719        7,865,959   

Capacity Days

     2,779,658        2,418,832        7,700,482        7,192,091   

Occupancy Percentage

     114.0     112.8     109.9     109.4

 

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Net Revenue, Gross Yield and Net Yield were calculated as follows (in thousands, except Capacity Days and Yield data):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2013
Constant
Currency
     2012      2013      2013
Constant
Currency
     2012  

Passenger ticket revenue

   $ 583,923       $ 582,316       $ 490,322       $ 1,400,470       $ 1,399,622       $ 1,257,871   

Onboard and other revenue

     213,962         213,962         184,089         569,479         569,479         515,204   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     797,885         796,278         674,411         1,969,949         1,969,101         1,773,075   

Less:

                 

Commissions, transportation and other expense

     140,086         139,575         122,331         347,650         347,326         321,640   

Onboard and other expense

     61,744         61,744         53,641         153,431         153,431         136,851   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Revenue

   $ 596,055       $ 594,959       $ 498,439       $ 1,468,868       $ 1,468,344       $ 1,314,584   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Capacity Days

     2,779,658         2,779,658         2,418,832         7,700,482         7,700,482         7,192,091   

Gross Yield

   $ 287.04       $ 286.47       $ 278.82       $ 255.82       $ 255.71       $ 246.53   

Net Yield

   $ 214.43       $ 214.04       $ 206.07       $ 190.75       $ 190.68       $ 182.78   

Gross Cruise Cost, Net Cruise Cost, Net Cruise Cost Excluding Fuel and Adjusted Net Cruise Cost Excluding Fuel were calculated as follows (in thousands, except Capacity Days and per Capacity Day data):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2013
Constant
Currency
     2012      2013      2013
Constant
Currency
     2012  

Total cruise operating expense

   $ 456,102       $ 454,986       $ 394,071       $ 1,239,870       $ 1,239,171       $ 1,133,839   

Marketing, general and administrative expense

     77,606         77,477         57,779         236,923         236,724         190,748   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross Cruise Cost

     533,708         532,463         451,850         1,476,793         1,475,895         1,324,587   

Less:

        

Commissions, transportation and other expense

     140,086         139,575         122,331         347,650         347,326         321,640   

Onboard and other expense

     61,744         61,744         53,641         153,431         153,431         136,851   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Cruise Cost

     331,878         331,144         275,878         975,712         975,138         866,096   

Less: Fuel expense

     77,035         77,035         69,602         225,115         225,115         206,743   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Cruise Cost Excluding Fuel

     254,843         254,109         206,276         750,597         750,023         659,353   

Less: Other (1)

     6,857         6,857         —           27,307         27,307         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Net Cruise Cost Excluding Fuel

   $ 247,986       $ 247,252       $ 206,276       $ 723,290       $ 722,716       $ 659,353   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Capacity Days

     2,779,658         2,779,658         2,418,832         7,700,482         7,700,482         7,192,091   

Gross Cruise Cost per Capacity Day

   $ 192.00       $ 191.56       $ 186.81       $ 191.78       $ 191.66       $ 184.17   

Net Cruise Cost per Capacity Day

   $ 119.40       $ 119.13       $ 114.05       $ 126.71       $ 126.63       $ 120.42   

Net Cruise Cost Excluding Fuel per Capacity Day

   $ 91.68       $ 91.42       $ 85.28       $ 97.47       $ 97.40       $ 91.68   

Adjusted Net Cruise Cost Excluding Fuel per Capacity Day

   $ 89.21       $ 88.95       $ 85.28       $ 93.93       $ 93.85       $ 91.68   

 

(1) Consists of non-cash share-based compensation related to the IPO and other supplemental adjustments.

 

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Adjusted Net Income and Adjusted EPS was calculated as follows (in thousands, except share and per share data):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  

Net income attributable to Norwegian Cruise Line Holdings Ltd.

   $ 170,858       $ 128,188       $ 65,622       $ 167,503   

Net income attributable to non-controlling interest

     2,036         —           857         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     172,894         128,188         66,479         167,503   

Non-cash compensation

     4,057         —           4,566         —     

Non-cash share-based compensation related to IPO

     —           —           18,527         —     

Expenses related to debt prepayments (1)

     —           —           160,573         —     

Other (2)

     5,241         —           5,171         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Net Income

   $ 182,192       $ 128,188       $ 255,316       $ 167,503   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted–average shares outstanding

     210,703,244         179,050,050         208,673,608         178,986,504   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share (3)

   $ 0.82       $ 0.72       $ 0.32       $ 0.94   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EPS

   $ 0.86       $ 0.72       $ 1.22       $ 0.94   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Consists of premiums, write-offs of deferred fees and other expenses related to prepayments of debt.
(2) Expenses incurred from changes in corporate entity structure and our Secondary Offering in the third quarter of 2013.
(3) Diluted earnings per share is computed by dividing net income by diluted weighted-average shares outstanding.

Adjusted EBITDA was calculated as follows (in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013      2012     2013     2012  

Net income attributable to Norwegian Cruise Line Holdings Ltd.

   $ 170,858       $ 128,188      $ 65,622      $ 167,503   

Interest expense, net

     26,627         47,196        257,969        142,271   

Income tax expense

     7,933         398        11,177        544   

Depreciation and amortization expense

     56,097         48,423        158,699        140,900   
  

 

 

    

 

 

   

 

 

   

 

 

 

EBITDA

     261,515         224,205        493,467        451,218   

Net income attributable to non-controlling interest

     2,036         —          857        —     

Other (income) expense

     626         (1,644     (1,168     (2,730

Non-cash compensation and other (1)

     6,857         1,014        11,446        3,686   

Non-cash share-based compensation related to IPO

     —           —          18,527        —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 271,034       $ 223,575      $ 523,129      $ 452,174   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) Consists of non-cash compensation, expenses incurred from changes in corporate entity structure and our Secondary Offering in the third quarter of 2013 and other supplemental adjustments.

Three months ended September 30, 2013 (“2013”) compared to three months ended September 30, 2012 (“2012”)

Revenue

Total revenue increased 18.3% to $797.9 million in 2013 compared to $674.4 million in 2012. Net Revenue increased 19.6% in 2013, due to an increase in Capacity Days of 14.9% primarily due to the delivery of Norwegian Breakaway in April 2013 and an increase in Net Yield of 4.1%. The increase in Net Yield was due to an increase in passenger ticket pricing and higher onboard and other revenue, partially due to the introduction of Norwegian Breakaway to the fleet. On a Constant Currency basis, Net Yield increased 3.9% in 2013 compared to 2012.

Expense

Total cruise operating expense increased 15.7% in 2013 compared to 2012 primarily due to the increase in Capacity Days discussed above. Total other operating expense increased 25.9% in 2013 compared to 2012 primarily due to the timing of certain expenses,

 

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depreciation expense related to the addition of Norwegian Breakaway and expenses incurred from a change in corporate entity structure and our Secondary Offering. On a Capacity Day basis, Net Cruise Cost increased 4.7% and 4.5% on an as reported and Constant Currency basis, respectively, due to the increase in Capacity Days and expenses discussed above. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 4.6% and 4.3% on an as reported and Constant Currency basis, respectively, mainly due to the timing of certain expenses.

Interest expense, net decreased to $26.6 million in 2013 from $47.2 million in 2012 primarily due to lower interest rates resulting from the benefits from the redemption of higher rate debt and refinancing transactions.

Income tax expense increased to $7.9 million in 2013 from $0.4 million in 2012 primarily due to the change in our U.S. tax status from a partnership to a corporation in connection with our IPO.

Nine months ended September 30, 2013 (“2013”) compared to nine months ended September 30, 2012 (“2012”)

Revenue

Total revenue increased 11.1% to $2.0 billion in 2013 compared to $1.8 billion in 2012. Net Revenue increased 11.7% in 2013, due to an increase in Capacity Days of 7.1% related to the delivery of Norwegian Breakaway in April 2013 and an increase in Net Yield of 4.4%. The increase in Net Yield was due to an increase in passenger ticket pricing and higher onboard and other revenue, partially due to the introduction of Norwegian Breakaway to the fleet. On a Constant Currency basis, Net Yield increased 4.3% in 2013 compared to 2012.

Expense

Total cruise operating expense increased 9.4% in 2013 compared to 2012 primarily due to an increase in Capacity Days, fuel expense and expenses related to planned Dry-docks, partially offset by the timing of certain expenses. The increase in fuel expense was primarily the result of a 4.9% increase in the average fuel price to $685 per metric ton in 2013 from $653 per metric ton in 2012. Total other operating expense increased 19.3% in 2013 compared to 2012 primarily due to non-cash expenses related to share-based compensation recognized upon the realization of the IPO, the timing of certain expenses and the depreciation expense related to the addition of Norwegian Breakaway. On a Capacity Day basis, Net Cruise Cost increased 5.2% on both an as reported and Constant Currency basis due to the expenses discussed above. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 2.5% and 2.4% on an as reported and Constant Currency basis, respectively, mainly due to the timing of certain expenses.

Interest expense, net increased to $258.0 million in 2013 from $142.3 million in 2012 primarily due to $160.6 million of expenses associated with debt prepayments partially offset by lower interest rates resulting from the benefits from the redemption of higher rate debt and refinancing transactions.

Income tax expense increased to $11.2 million in 2013 from $0.5 million in 2012 primarily due to the change in our U.S. tax status from a partnership to a corporation in connection with our IPO.

Liquidity and Capital Resources

General

As of September 30, 2013, our liquidity was $565.0 million consisting of $57.0 million in cash and cash equivalents and $508.0 million available under our Revolving Loan Facility. Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service.

As of September 30, 2013, we had a working capital deficit of $890.7 million. This deficit included $434.5 million of advance ticket sales, which represents the passenger revenues we collect in advance of sailing dates and accordingly are substantially more like deferred revenue balances rather than actual current cash liabilities. Our business model, along with our Revolving Loan Facility, allows us to operate with a working capital deficit and still meet our operating, investing and financing needs.

Sources and Uses of Cash

In this section, references to “2013” refer to the nine months ended September 30, 2013 and references to “2012” refer to the nine months ended September 30, 2012.

Net cash provided by operating activities was $398.3 million in 2013 as compared to $376.5 million in 2012. The change in net cash provided by operating activities reflects the net income in 2013 of $66.5 million which included fees of $124.2 million related to prepayment of debt compared to net income in 2012 of $167.5 million, as well as timing differences in cash receipts and payments relating to operating assets and liabilities. The 2012 balance included $6.0 million related to the premium received from the issuance of $100.0 million of senior unsecured notes.

Net cash used in investing activities was $835.8 million in 2013, primarily related to the payments for construction and delivery of Norwegian Breakaway and construction of Norwegian Getaway, as well as other ship improvements and shoreside projects. Net cash used in investing activities was $229.9 million in 2012, primarily related to the payments for construction of Norwegian Breakaway and Norwegian Getaway, the purchase of Norwegian Sky, and other ship improvements and shoreside projects.

 

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Net cash provided by financing activities was $448.9 million in 2013, primarily due to the issuance of our $300.0 million 5% senior notes due 2018 as well as borrowings under other credit facilities and the proceeds from the issuance of ordinary shares partially offset by repayments of our $450.0 million 11.75% senior secured notes due 2016 and revolving credit facilities and a payment related to Norwegian Sky purchase agreement. Net cash used in financing activities was $136.9 million in 2012, primarily due to repayments of our revolving credit facilities and other borrowings which were partially offset by the issuance of $100.0 million of senior unsecured notes.

Future Capital Commitments

Future capital commitments consist of contracted commitments, including future expected capital expenditures for business enhancements and ship construction contracts. As of September 30, 2013, anticipated capital expenditures together with amounts for ship construction and related export credit financing were as follows (in thousands, based on the euro/U.S. dollar exchange rate as of September 30, 2013):

 

     Fourth
Quarter
2013
     Full Year  
        2014     2015     2016  

Ship construction

   $ 37,143       $ 787,591      $ 940,321      $ 114,041   

Ship financing

     —           (696,213     (749,290     (45,345
  

 

 

    

 

 

   

 

 

   

 

 

 

Ship construction net of financing

   $ 37,143       $ 91,378      $ 191,031      $ 68,696   
  

 

 

    

 

 

   

 

 

   

 

 

 

Business Enhancement Capital Expenditures (1)

   $ 22,147       $ 110,000      $ 90,000      $ 85,000   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) For the fourth quarter and full year 2013, Business Enhancement Capital Expenditures include $7.0 million and $40.0 million for ROI Capital Expenditures, respectively.

Norwegian Getaway is under construction with Meyer Werft and is scheduled for delivery in January 2014. This ship will be approximately 144,000 Gross Tons with 4,000 Berths at an aggregate cost of approximately €627.7 million, or $849.1 million based on the euro/U.S. dollar exchange rate as of September 30, 2013. We have export credit financing in place that provides financing for 90% of its contract price.

We also have orders with Meyer Werft for two additional ships for delivery in the fourth quarter of 2015 and the first quarter of 2017. These ships, Norwegian Escape and Norwegian Bliss, will be the largest in our fleet at approximately 163,000 Gross Tons with 4,200 Berths each and will be similar in design and innovation to our Breakaway Class Ships. The combined contract cost of these two additional ships is approximately €1.4 billion, or $1.9 billion based on the euro/U.S. dollar exchange rate as of September 30, 2013. We have export credit financing in place that provides financing for 80% of their contract price.

In connection with the contracts to build these ships, we do not anticipate any contractual breaches or cancellation to occur. However, if any would occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us, subject to certain refund guarantees, and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.

Capitalized interest for the three months ended September 30, 2013 and 2012 was $5.9 million and $5.7 million, respectively, and for the nine months ended September 30, 2013 and 2012 was $19.0 million and $15.7 million, respectively, associated with the construction of Norwegian Breakaway and Norwegian Getaway.

Off-Balance Sheet Transactions

None.

 

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Contractual Obligations

As of September 30, 2013, our contractual obligations, with initial or remaining terms in excess of one year, including interest payments on long-term debt obligations, were as follows (in thousands):

 

     Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 

Long-term debt (1)

   $ 3,113,041       $ 282,564       $ 632,791       $ 1,355,449       $ 842,237   

Due to Affiliate (2)

     110,283         36,815         73,468         —           —     

Operating leases (3)

     36,577         6,389         11,135         10,391         8,662   

Ship construction contracts (4)

     2,537,654         739,441         1,042,465         755,748        —     

Port facilities (5)

     183,705         27,704         52,780         46,736         56,485   

Interest (6)

     395,613         75,103         141,546         106,127         72,837   

Other (7)

     58,793         35,735         20,686         1,747         625   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,435,666       $ 1,203,751       $ 1,974,871       $ 2,276,198       $ 980,846   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Net of unamortized original issue discount of $1.5 million. Also includes capital leases.
(2) Primarily related to the purchase of Norwegian Sky.
(3) Primarily for offices, motor vehicles and office equipment.
(4) For Norwegian Getaway, Norwegian Escape and Norwegian Bliss based on the euro/U.S. dollar exchange rate as of September 30, 2013. Export credit financing is in place from a syndicate of banks.
(5) Primarily for our usage of certain port facilities.
(6) Includes fixed and variable rates with LIBOR held constant as of September 30, 2013.
(7) Future commitments for service and maintenance contracts.

Other

Certain of our service providers may require collateral in the normal course of our business. The amount of collateral may change based on certain terms and conditions.

As a routine part of our business, depending on market conditions, exchange rates, pricing and our strategy for growth, we regularly consider opportunities to enter into contracts for the building of additional ships. We may also consider the sale of ships, potential acquisitions and strategic alliances. If any of these were to occur, they may be financed through the incurrence of additional permitted indebtedness, through cash flows from operations, or through the issuance of debt, equity or equity-related securities.

Funding Sources

Our debt agreements contain covenants that, among other things, require us to maintain a minimum level of liquidity, as well as limit our net funded debt-to-capital ratio, maintain certain other ratios and restrict our ability to pay dividends. Our ships and substantially all other property and equipment are pledged as collateral for our debt. We believe we were in compliance with these covenants as of September 30, 2013.

The impact of changes in world economies and especially the global credit markets has created a challenging environment and may reduce future consumer demand for cruises and adversely affect our counterparty credit risks. In the event this environment deteriorates, our business, financial condition and results of operations could be adversely impacted.

We believe our cash on hand, expected future operating cash inflows, additional available borrowings under our existing credit facility and our ability to issue debt securities or raise additional equity, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next twelve-month period. As a result of the equity infusion from the IPO and the related use of proceeds, our leverage was improved and our balance sheet was strengthened. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

General

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. The financial impacts of these derivative instruments are primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the amount, term and conditions of the derivatives with the underlying risk being hedged. We do not hold or issue derivatives for trading or other speculative purposes. Derivative positions are monitored using techniques including market valuations and sensitivity analyses.

 

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Interest Rate Risk

From time to time, we consider entering into interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense. As of September 30, 2013, 39% of our debt was fixed and 61% was variable which includes the effects of the interest rate swap. The notional amount of outstanding debt associated with the interest rate swap agreements as of September 30, 2013 was $705.8 million. Based on our September 30, 2013 outstanding variable rate debt balance, a one percentage point increase in annual LIBOR interest rates would increase our annual interest expense by approximately $18.9 million excluding the effects of capitalization of interest.

Foreign Currency Exchange Rate Risk

As of September 30, 2013, we had foreign currency options, including call options with deferred premiums and a collar, to hedge the exposure to volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. These derivatives hedge the foreign currency exchange rate risk on a portion of the final payments on our ship construction contracts. For the call option contracts, if the spot rate at the date the ships are delivered is less than the strike price we would pay the deferred premiums and not exercise the options. For the collar, if the spot rate at the date the ships are delivered is more than the put option strike price and less than the call option strike price, neither the put or call option will be exercised. As of September 30, 2013, the remaining payments not hedged aggregate €1,601.0 million, or $2,165.7 million based on the euro/U.S. dollar exchange rate as of September 30, 2013. We estimate that a 10% change in the euro as of September 30, 2013 would result in a $216.6 million change in the U.S. dollar value of the foreign currency denominated remaining payments.

Fuel Price Risk

Our exposure to market risk for changes in fuel prices relates to the forecasted purchases of fuel on our ships. Fuel expense, as a percentage of our total cruise operating expense, was 16.9% and 17.7% for the three months ended September 30, 2013 and 2012 and 18.2% for each of the nine months ended September 30, 2013 and 2012, respectively. From time to time, we use fuel derivative agreements to mitigate the financial impact of fluctuations in fuel prices. As of September 30, 2013, we had hedged approximately 93%, 64%, 51% and 15% of our 2013, 2014, 2015 and 2016 projected metric tons of fuel purchases, respectively. We estimate that a 10% increase in our weighted-average fuel price would increase our anticipated 2013 fuel expense by $7.5 million. This increase would be partially offset by an increase in the fair value of our fuel swap agreements and fuel collars and options of $6.4 million. Fair value of our derivative contracts is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms such as maturity, as well as other inputs such as fuel types, fuel curves, creditworthiness of the counterparty and the Company, as well as other data points.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of September 30, 2013. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

 

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Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In July 2009, a class action complaint was filed against NCL (Bahamas) Ltd. in the United States District Court, Southern District of Florida, on behalf of a purported class of crew members alleging inappropriate deductions of their wages pursuant to the Seaman’s Wage Act and wrongful termination resulting in a loss of retirement benefits. In December 2010, the Court denied the plaintiffs’ Motion for Class Certification. In February 2011, the plaintiffs filed a Motion for Reconsideration as to the Court’s Order on Class Certification which was denied. The Court tried six individual plaintiffs’ claims, and in September 2012 awarded wages aggregating approximately $100,000 to such plaintiffs. In October 2013, the United States Court of Appeals for the Eleventh Circuit affirmed the Court’s rulings as to the denial of class certification and the trial verdict. We intend to continue to vigorously defend this action and are not able at this time to estimate the impact of these proceedings.

In May 2011, a class action complaint was filed against NCL (Bahamas) Ltd. in the United States District Court, Southern District of Florida, on behalf of a purported class of crew members alleging inappropriate deductions of their wages pursuant to the Seaman’s Wage Act and breach of contract. In July 2012, this action was stayed by the Court pending the outcome of the litigation commenced with the class action complaint filed in July 2009. We are vigorously defending this action and are not able at this time to estimate the impact of these proceedings.

In the normal course of our business, various other claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability is typically limited to our deductible amount. Nonetheless, the ultimate outcome of these claims and lawsuits that are not covered by insurance cannot be determined at this time. We have evaluated our overall exposure with respect to all of our threatened and pending litigation and, to the extent required, we have accrued amounts for all estimable probable losses associated with our deemed exposure. We are currently unable to estimate any other potential contingent losses beyond those accrued, as discovery is not complete nor is adequate information available to estimate such range of loss or potential recovery. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery.

Item 1A. Risk Factors

We refer you to our 2012 Annual Report on Form 10-K for a discussion of the risk factors that affect our business and financial results. There have been no material changes to those risk factors.

Item 5. Other Information

Shareholder Proposals

We intend to hold our first Annual Meeting of Shareholders (the “Annual Meeting”) on April 24, 2014, at a time and location to be determined and specified in our proxy statement related to the Annual Meeting.

Under the Securities and Exchange Commission’s proxy rules, we have set the deadline for submission of proposals to be included in our proxy materials for the Annual Meeting as the close of business on December 31, 2013. Accordingly, in order for a shareholder proposal to be considered for inclusion in our proxy materials for the Annual Meeting, the proposal must be received by our Assistant Corporate Secretary, Norwegian Cruise Line Holdings Ltd., 7665 Corporate Center Drive, Miami, Florida 33126, on or before the close of business on December 31, 2013, and must comply with the procedures and requirements set forth in Rule 14a-8 under the Securities Exchange Act of 1934, as amended.

In accordance with the advance notice requirements contained in our amended and restated bylaws, for director nominations or other business to be brought before the Annual Meeting by a shareholder, other than Rule 14a-8 proposals described above, written notice must be delivered no earlier than on December 25, 2013, and no later than the close of business on January 24, 2014, to our Assistant Corporate Secretary, Norwegian Cruise Line Holdings Ltd., 7665 Corporate Center Drive, Miami, Florida 33126. These shareholder notices also must comply with the requirements of our amended and restated bylaws and will not be effective otherwise.

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

Apollo Global Management, LLC (“Apollo”) has provided notice to us that, as of October 24, 2013, certain investment funds managed by affiliates of Apollo beneficially owned approximately 22% of the limited liability company interests of CEVA Holdings, LLC (“CEVA”). Under the limited liability company agreement governing CEVA, certain investment funds managed by affiliates of Apollo hold a majority of the voting power of CEVA and have the right to elect a majority of the board of CEVA. CEVA may be deemed to be under common control with us, but this statement is not meant to be an admission that common control exists. As a result, it appears that we are required to provide disclosures as set forth below pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”) and Section 13(r) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Apollo has informed us that CEVA has provided it with the information below relevant to Section 13(r) of the Exchange Act. The disclosure below does not relate to any activities conducted by us and does not involve us or our management. The disclosure relates solely to activities conducted by CEVA and its consolidated subsidiaries. We have not independently verified or participated in the preparation of the disclosure below.

“Through an internal review of its global operations, CEVA has identified the following transactions in an Initial Notice of Voluntary Self-Disclosure that CEVA filed with the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”) on October 28, 2013. CEVA’s review is ongoing. CEVA will file a further report with OFAC after completing its review.

The internal review indicates that, in December 2012, CEVA Freight Italy Srl (“CEVA Italy”) provided customs brokerage and freight forwarding services for the export to Iran of two measurement instruments to the Iranian Offshore Engineering Construction Company, a joint venture between two entities that are identified on OFAC’s list of Specially Designated Nationals (“SDN”). The revenues and net profits for these services were approximately $1,260.64 USD and $151.30 USD, respectively. In February 2013, CEVA Freight Holdings (Malaysia) SDN BHD (“CEVA Malaysia”) provided customs brokerage for export and local haulage services for a shipment of polyethylene resin to Iran shipped on a vessel owned and/or operated by HDS Lines, also an SDN. The revenues and net profits for these services were approximately $779.54 USD and $311.13 USD, respectively. In September 2013, CEVA Malaysia provided customs brokerage services for the import into Malaysia of fruit juice from Alifard Co. in Iran via HDS Lines. The revenues and net profits for these services were approximately $227.41 USD and $89.29 USD, respectively.

These transactions violate the terms of internal CEVA compliance policies, which prohibit transactions involving Iran. Upon discovering these transactions, CEVA promptly launched an internal investigation, and is taking action to block and prevent such transactions in the future. CEVA intends to cooperate with OFAC in its review of this matter.”

Item 6. Exhibits

 

31.1    Certification of the President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*
31.2    Certification of the Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*
32.1    Certifications of the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code**

 

* Filed herewith
** Furnished herewith

Interactive Data File

 

101 The following unaudited financial statements are from Norwegian Cruise Line Holdings Ltd.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, as filed with the SEC on October 31, 2013, formatted in XBRL, as follows:

 

  (i) the Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012;

 

  (ii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012;

 

  (iii) the Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012;

 

  (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012;

 

  (v) the Consolidated Statements of Changes in Shareholder’s Equity; and

 

  (vi) the Notes to the Consolidated Financial Statements, tagged in summary and detail.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

NORWEGIAN CRUISE LINE HOLDINGS LTD.

(Registrant)

By:  

/s/ KEVIN M. SHEEHAN

Name:   Kevin M. Sheehan
Title:   President and Chief Executive Officer
By:  

/s/ WENDY A. BECK

Name:   Wendy A. Beck
Title:   Executive Vice President and Chief Financial Officer

Dated: October 31, 2013

 

28

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Kevin M. Sheehan, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Norwegian Cruise Line Holdings Ltd.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

/s/ Kevin M. Sheehan

Dated: October 31, 2013   Name: Kevin M. Sheehan
  Title: President and Chief Executive Officer
EX-31.2

Exhibit 31.2

CERTIFICATION

I, Wendy A. Beck, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Norwegian Cruise Line Holdings Ltd.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

/s/ Wendy A. Beck

Dated: October 31, 2013   Name: Wendy A. Beck
  Title: Executive Vice President and Chief Financial Officer
EX-32.1

Exhibit 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL

OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of Kevin M. Sheehan, the President and Chief Executive Officer, and Wendy A. Beck, the Executive Vice President and Chief Financial Officer, of Norwegian Cruise Line Holdings Ltd. (the “Company”), does hereby certify, that, to such officer’s knowledge:

The Quarterly Report on Form 10-Q of the Company, for the quarter ended September 30, 2013 (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 31, 2013

 

By:  

/s/ Kevin M. Sheehan

Name:   Kevin M. Sheehan
Title:   President and Chief Executive Officer
By:  

/s/ Wendy A. Beck

Name:   Wendy A. Beck
Title:   Executive Vice President and Chief Financial Officer