UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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There were
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |||
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2019 |
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Revenue |
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Passenger ticket | $ | | $ | | $ | | $ | | |||||
Onboard and other |
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Total revenue |
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Cruise operating expense |
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Commissions, transportation and other |
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Onboard and other |
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Payroll and related |
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Fuel |
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Food |
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Other |
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Total cruise operating expense |
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Other operating expense |
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Marketing, general and administrative |
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Depreciation and amortization |
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Total other operating expense |
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Operating income |
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Non-operating income (expense) |
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Interest expense, net |
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Other income, net |
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Total non-operating income (expense) |
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Net income before income taxes |
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Income tax benefit (expense) |
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Net income | $ | | $ | | $ | | $ | | |||||
Weighted-average shares outstanding |
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Basic |
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Diluted |
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Earnings per share |
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Basic | $ | | $ | | $ | | $ | | |||||
Diluted | $ | | $ | | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
3
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 |
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Net income | $ | | $ | | $ | | $ | | |||||
Other comprehensive income (loss): |
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Shipboard Retirement Plan |
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Cash flow hedges: |
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Net unrealized gain (loss) |
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Amount realized and reclassified into earnings |
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Total other comprehensive income (loss) |
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Total comprehensive income | $ | | $ | | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
4
Norwegian Cruise Line Holdings Ltd.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
September 30, | December 31, | |||||
| 2019 |
| 2018 | |||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
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Inventories |
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Prepaid expenses and other assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Tradenames |
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Other long-term assets |
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Total assets | $ | | $ | | ||
Liabilities and shareholders’ equity |
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Current liabilities: |
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Current portion of long-term debt | $ | | $ | | ||
Accounts payable |
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Accrued expenses and other liabilities |
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Advance ticket sales |
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Total current liabilities |
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Long-term debt |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 11) |
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Shareholders’ equity: |
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Ordinary shares, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Retained earnings |
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Treasury shares ( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
5
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended | ||||||
September 30, | ||||||
| 2019 |
| 2018 | |||
Cash flows from operating activities |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization expense |
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Deferred income taxes, net |
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Loss on extinguishment of debt |
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Provision for bad debts and inventory obsolescence |
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Gain on involuntary conversion of assets | ( | — | ||||
Share-based compensation expense |
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Net foreign currency adjustments |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued expenses and other liabilities |
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Advance ticket sales |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Additions to property and equipment, net |
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Issuance of loans | ( | — | ||||
Cash received on settlement of derivatives |
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Cash paid on settlement of derivatives | ( | — | ||||
Other | | | ||||
Net cash used in investing activities |
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Cash flows from financing activities |
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Repayments of long-term debt |
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Proceeds from long-term debt |
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Proceeds from employee related plans |
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Net share settlement of restricted share units |
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Purchases of treasury shares |
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Early redemption premium |
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Deferred financing fees |
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Net cash used in financing activities |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
6
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
(in thousands)
Three Months Ended September 30, 2019 | ||||||||||||||||||
Accumulated | ||||||||||||||||||
Additional | Other | Total | ||||||||||||||||
Ordinary | Paid-in | Comprehensive | Retained | Treasury | Shareholders’ | |||||||||||||
Shares |
| Capital |
| Income (Loss) |
| Earnings |
| Shares |
| Equity | ||||||||
Balance, June 30, 2019 |
| $ | |
| $ | |
| $ | ( |
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| $ | ( |
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Share-based compensation |
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Issuance of shares under employee related plans |
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Treasury shares | — | — | — | — | ( | ( | ||||||||||||
Net share settlement of restricted share units |
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Other comprehensive loss, net |
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Net income |
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Balance, September 30, 2019 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Nine Months Ended September 30, 2019 | ||||||||||||||||||
Accumulated | ||||||||||||||||||
Additional | Other | Total | ||||||||||||||||
Ordinary | Paid-in | Comprehensive | Retained | Treasury | Shareholders’ | |||||||||||||
| Shares |
| Capital |
| Income (Loss) |
| Earnings |
| Shares |
| Equity | |||||||
Balance, December 31, 2018 |
| $ | |
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| $ | ( |
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Share-based compensation |
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Issuance of shares under employee related plans |
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Treasury shares | — | — | — | — | ( | ( | ||||||||||||
Net share settlement of restricted share units |
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Other comprehensive loss, net |
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Net income |
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Balance, September 30, 2019 | $ | | $ | | $ | ( | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
7
Norwegian Cruise Line Holdings Ltd.
Consolidated Statements of Changes in Shareholders’ Equity - Continued
(Unaudited)
(in thousands)
Three Months Ended September 30, 2018 | ||||||||||||||||||
Accumulated |
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Additional | Other | Total | ||||||||||||||||
Ordinary | Paid-in | Comprehensive | Retained | Treasury | Shareholders’ | |||||||||||||
Shares |
| Capital |
| Income (Loss) |
| Earnings |
| Shares | Equity | |||||||||
Balance, June 30, 2018 |
| $ | |
| $ | |
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| $ | ( |
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Share-based compensation |
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Issuance of shares under employee related plans |
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Net share settlement of restricted share units |
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Other comprehensive income, net |
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Net income |
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Balance, September 30, 2018 | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Nine Months Ended September 30, 2018 | ||||||||||||||||||
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Additional | Other | Total | ||||||||||||||||
Ordinary | Paid-in | Comprehensive | Retained | Treasury | Shareholders’ | |||||||||||||
| Shares |
| Capital |
| Income (Loss) |
| Earnings |
| Shares | Equity | ||||||||
Balance, December 31, 2017 |
| $ | |
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| $ | ( |
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Share-based compensation |
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Issuance of shares under employee related plans |
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Treasury shares | — | — | — | — | ( | ( | ||||||||||||
Net share settlement of restricted share units |
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Cumulative change in accounting policy |
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Other comprehensive income, net |
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Net income |
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Balance, September 30, 2018 | $ | | $ | | $ | | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
8
Norwegian Cruise Line Holdings Ltd.
Notes to Consolidated Financial Statements
(Unaudited)
Unless otherwise indicated or the context otherwise requires, references in this report to (i) the “Company,” “we,” “our” and “us” refer to NCLH (as defined below) and its subsidiaries (including Prestige (as defined below), except for periods prior to the consummation of the Acquisition of Prestige (as defined below)), (ii) “NCLC” refers to NCL Corporation Ltd., (iii) “NCLH” refers to Norwegian Cruise Line Holdings Ltd., (iv)“Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and its predecessors, and (v) “Prestige” refers to Prestige Cruises International S. de R.L. (formerly Prestige Cruises International, Inc.), together with its consolidated subsidiaries, including Prestige Cruise Holdings S. de R.L. (formerly Prestige Cruise Holdings, Inc.), Prestige’s direct wholly-owned subsidiary, which in turn is the parent of Oceania Cruises S. de R.L. (formerly Oceania Cruises, Inc.) (“Oceania Cruises”) and Seven Seas Cruises S. de R.L. (“Regent”) (Oceania Cruises also refers to the brand by the same name and Regent also refers to the brand Regent Seven Seas Cruises).
References to the “U.S.” are to the United States of America, and “dollar(s)” or “$” are to U.S. dollars, the “U.K.” are to the United Kingdom and “euro(s)” or “€” are to the official currency of the Eurozone. We refer you to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Terminology” for the capitalized terms used and not otherwise defined throughout these notes to consolidated financial statements.
1. Description of Business and Organization
We are a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. As of September 30, 2019, we had
Norwegian Encore was delivered in October 2019. We refer you to Note 15 – “Subsequent Events” for additional information. We have
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 Northern Hemisphere’s summer months. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018, which are included in our most recent Annual Report on Form 10-K filed with the SEC.
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Earnings Per Share
A reconciliation between basic and diluted earnings per share was as follows (in thousands, except share and per share data):
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 |
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Net income | $ | | $ | | $ | | $ | | |||||
Basic weighted-average shares outstanding |
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Dilutive effect of share awards |
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Diluted weighted-average shares outstanding |
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Basic earnings per share | $ | | $ | | $ | | $ | | |||||
Diluted earnings per share | $ | | $ | | $ | | $ | |
For the three months ended September 30, 2019 and 2018, a total of
Foreign Currency
The majority of our transactions are settled in U.S. dollars. We remeasure assets and liabilities denominated in foreign currencies at exchange rates in effect at the balance sheet date. Gains or losses resulting from transactions denominated in other currencies are recognized in our consolidated statements of operations within other income, net. We recognized a gain of $
Depreciation and Amortization Expense
The amortization of deferred financing fees is included in depreciation and amortization expense in the consolidated statements of cash flows; however, for purposes of the consolidated statements of operations they are included in interest expense, net.
Recently Adopted Accounting Guidance
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force), which is designed to align the accounting for costs of implementing a cloud computing service arrangement, regardless of whether the hosting arrangement conveys a license to the hosted software. For hosting arrangements considered to be a service contract, the update requires that the criteria for capitalization of developing or obtaining internal-use software shall be applied.
On April 1, 2019, we adopted ASU 2018-15 and elected the prospective transition approach. The impact of adopting this accounting policy was not material to the Company’s consolidated financial statements.
Recently Issued Accounting Guidance
In June 2016, FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will require an entity to present the net amount expected to be collected for certain financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The update will be applied prospectively with a cumulative-effect adjustment to retained earnings. This update will be effective for the Company for fiscal years
10
beginning after December 15, 2019 and interim periods within those fiscal years. The adoption of this standard will not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350) — Simplifying the Test for Goodwill Impairment, which simplifies the test for goodwill impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The guidance is effective for annual or any interim goodwill impairment tests in years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect to early adopt this guidance. The Company will evaluate, upon adoption of this guidance, the impact of this guidance on the Company’s consolidated financial statements.
3. Revenue Recognition
Disaggregation of Revenue
Revenue and cash flows are affected by economic factors in various geographical regions. Revenues by destination were as follows (in thousands):
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 |
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North America | $ | | $ | | $ | | $ | | |||||
Europe |
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Asia-Pacific |
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Other |
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Total revenue | $ | | $ | | $ | | $ | |
North America includes the U.S., the Caribbean, Canada and Mexico. Europe includes the Baltic region, Canary Islands and Mediterranean. Asia-Pacific includes Australia, New Zealand and Asia. Other includes all other international territories.
Segment Reporting
We have concluded that our business has a single reportable segment. Each brand, Norwegian, Oceania Cruises and Regent, constitutes a business for which discrete financial information is available and management regularly reviews the brand level operating results and, therefore, each brand is considered an operating segment. Our operating segments have similar economic and qualitative characteristics, including similar long-term margins and similar products and services; therefore, we aggregate all of the operating segments into
Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to U.S.-sourced guests who make reservations in the U.S. Revenue attributable to U.S.-sourced guests has historically approximated
Contract Balances
Receivables from customers are included within accounts receivable, net. As of September 30, 2019 and December 31, 2018, our receivables from customers were $
Our contract liabilities are included within advance ticket sales. As of September 30, 2019 and December 31, 2018, our contract liabilities were $
11
4. Intangible Assets
The carrying amounts of intangible assets subject to amortization are included within other long-term assets. The gross carrying amounts of intangible assets, the related accumulated amortization, the net carrying amounts and the weighted-average amortization periods of the Company’s intangible assets are listed in the following tables (in thousands, except amortization period):
September 30, 2019 | |||||||||||
Weighted- | |||||||||||
Average | |||||||||||
Gross Carrying | Accumulated | Net Carrying | Amortization | ||||||||
| Amount |
| Amortization |
| Amount |
| Period (Years) | ||||
Customer relationships | $ | | $ | ( | $ | |
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License |
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Total intangible assets subject to amortization | $ | | $ | ( | $ | |
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December 31, 2018 | |||||||||||
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Average | |||||||||||
Gross Carrying | Accumulated | Net Carrying | Amortization | ||||||||
| Amount |
| Amortization |
| Amount |
| Period (Years) | ||||
Customer relationships | $ | | $ | ( | $ | |
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Licenses |
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| ( |
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Total intangible assets subject to amortization | $ | | $ | ( | $ | |
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The aggregate amortization expense for intangible assets is as follows (in thousands):
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 |
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Amortization expense | $ | | $ | | $ | | $ | |
The following table sets forth the Company’s estimated aggregate amortization expense for each of the five years below (in thousands):
| Amortization | ||
Year ended December 31, | Expense | ||
2020 | $ | | |
2021 | | ||
2022 | | ||
2023 | | ||
2024 | |
5. Leases
On January 1, 2019, we adopted ASU No. 2016-02, Leases (“Topic 842”). Topic 842 supersedes the lease accounting requirements in Accounting Standards Codification (“ASC”) 840—Leases. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to Topic 842, which included an option to apply the new leases standard at the adoption date using a modified retrospective approach, which the Company elected.
12
Nature of Leases
We have finance leases for certain ship equipment and a corporate office. We have operating leases for port facilities, corporate offices, warehouses, and certain equipment. Many of our leases include both lease and non-lease components. We have adopted the practical expedient which allows us to combine lease and non-lease components by class of asset. We have applied this expedient for office leases, port facilities, and certain equipment.
Significant Assumptions and Judgments in Applying Topic 842 and Practical Expedients Elected
Our leases contain both fixed and variable payments. Fixed payments and variable lease payments that depend on a rate or index are included in the calculation of the right-of-use asset. Other variable payments are excluded from the calculation unless there is an unavoidable fixed minimum cost related to those payments such as a minimum annual guarantee. Our lease assets are amortized on a straight-line basis except for our rights to use port facilities. The expenses related to port facilities are amortized based on passenger counts as this basis represents the pattern in which the economic benefit is derived from the right to use the underlying asset.
For non-consecutive lease terms, which relate to our rights to use certain port facilities, the term of the lease is based on the number of days on which we have the right to use a specified asset. We have adopted the practical expedient to exclude leases with terms of less than one year from being included on the balance sheet. Lease expense for agreements that are short-term are disclosed below and include both fixed and variable payments.
Certain leases include one or more options to extend or terminate and are primarily in
As our leases do not have a readily determinable implicit rate, we used our weighted average cost of debt to determine the net present value of the lease payments at the adoption date. Our weighted average cost of debt is similar to the incremental borrowing rate we would have obtained if we had borrowed collateralized debt over the lease term to purchase the asset, and the rate was adjusted for longer term leases.
We have also adopted the practical expedient which allows us, by class of asset, to not separate lease and non-lease components when we are the lessor in the underlying transaction, the transactions would otherwise be accounted for under ASC 606–Revenue Recognition and the non-lease components are the predominant components of the agreements. We have applied this practical expedient to transactions with cruise passengers and concession service providers related to the use of our ships. We refer you to Note 3 – “Revenue Recognition.”
Impacts on Financial Statements
As a result of the adoption of Topic 842 on January 1, 2019, we recorded operating lease right-of-use assets of $
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