Receivables from customers are included within accounts receivables, net. As of September 30, 2018 and January 1, 2018, our receivables from customers were $19.7 million and $13.8 million, respectively.

Contract liabilities represent the Company’s obligation to transfer goods and services to a customer. A customer deposit held for a future cruise is generally considered a contract liability only when final payment is both due and paid by the customer and is usually recognized in earnings within 180 days of becoming a contract. Other deposits held and included within advance ticket sales or other long-term liabilities are not considered contract liabilities as they are largely cancelable and refundable. Our contract liabilities are included within advance ticket sales. As of September 30, 2018 and January 1, 2018, our contract liabilities were $1.3 billion and $1.0 billion, respectively. Of the amounts included ~~on a gross basis are $94.8 million and $80.3 million for~~within contract liabilities, approximately 50% were refundable in accordance with our cancellation policies. Approximately $1.0 billion of the ~~three months ended September 30, 2017 and 2016, respectively, and $246.9 million and $214.3 million~~January 1, 2018 contract liability balance has been recognized in revenue for the nine months ended September 30, ~~2017~~2018.

Our revenue is seasonal and ~~2016, respectively.~~based on the demand for cruises. Historically, the seasonality of the North American cruise industry generally results in the greatest demand for cruises during the Northern Hemisphere’s summer months. This predictable seasonality in demand has resulted in fluctuations by quarter in our revenue and results of operations. The seasonality of our results is increased due to ships being taken out of service for regularly scheduled Dry-docks, which we typically schedule during non-peak demand periods. This seasonality will result in higher contract liability balances as a result of an increased number of reservations preceding these peak demand periods. The addition of new ships also increases the contract liability balances prior to a new ship’s delivery, as staterooms are usually made available for reservation prior to the inaugural cruise. Norwegian Bliss, with approximately 4,000 Berths, was delivered on April 19, 2018 and added 8% capacity to our fleet.

We do not disclose information about remaining performance obligations that have original expected durations of one year or less. We recognize revenue in an amount that corresponds directly with the value to the customer of our performance completed to date. Variable consideration, which will be determined based on a future rate and passenger count, is excluded from the disclosure and these amounts are not material. These variable non-disclosed contractual amounts relate to our non-cancelable charter agreements and a leasing arrangement with a certain port, both of which are long-term in nature. Amounts that are fixed in nature due to the application of minimum guarantees are also not material and are not disclosed.

Management expects that incremental commissions and credit card fees paid as a result of obtaining ticket contracts are recoverable; therefore, we recognize these amounts as assets when they are paid prior to the voyage. Costs of air tickets and port taxes and fees that fulfill future performance obligations are also considered recoverable and are recorded as assets. As of September 30, 2018, $118.4 million of costs incurred to obtain customers and $25.6 million of costs to fulfill contracts with customers are recognized as assets within prepaid expenses and other assets. Incremental commissions, credit card fees, air ticket costs, and port taxes and fees are recognized ratably over the voyage sailing dates, concurrent with associated revenue, and are primarily in commissions, transportation and other expense.

As of January 1, 2018, in connection with the adoption of Topic 606, we reclassified $51.6 million of deferred costs associated with obtaining customer contracts to prepaid expenses and other assets from advance ticket sales.

The adoption of Topic 606 does not change the timing, classification or amount of revenue recognized from customers in our consolidated financial statements nor does it change the timing, classification or amount of incremental costs to obtain and fulfill those contracts with customers. Therefore, the adoption had no impact on our consolidated statement of operations or consolidated statement of comprehensive income.

The following table summarizes the impact of the adoption of Topic 606 on our consolidated balance sheet, which has been adjusted for deferred contract costs that would have been included, net, in advance ticket sales, as of September 30, 2018 (in thousands):

The following table summarizes the impact of the adoption of Topic 606 on our consolidated statement of cash flows for the nine months ended September 30, 2018 (in thousands):

The majority of our transactions are settled in U.S. ~~dollars~~dollars. We translate assets and ~~the functional currency~~liabilities of our foreign subsidiaries isat exchange rates in effect at the ~~U.S. dollar. Gains or losses resulting from transactions denominated in other currencies are recognized in income at each~~ balance sheet date. We recognized ~~losses~~a loss of ~~$4.0~~$0.2 million and ~~$1.4~~$4.0 million for the three months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~losses~~a gain of ~~$14.8~~$10.7 million and ~~$1.8~~a loss of $14.8 million for the nine months ended September 30, 2018 and 2017, ~~and 2016, respectively.~~respectively, related to transactions denominated in other currencies.

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~~the amortization of deferred financing fees is included in interest expense, net.

In August ~~2017,~~2018, the ~~Financial~~FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting ~~Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12~~.~~The objectives of this ASU are to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities~~for Implementation Costs Incurred in ~~its financial statements and to make certain targeted improvements to simplify the application~~a Cloud Computing Arrangement That is a Service Contract (a consensus of the ~~hedge~~FAS Emerging Issues Task Force),which is designed to align the accounting ~~guidance in current GAAP. This ASU~~for costs of implementing a cloud computing service arrangement, regardless of whether the hosting arrangement conveys a license to the hosted software. The update requires that for hosting arrangements considered to be a service contract, the criteria for capitalization of developing or obtaining internal-use software shall be applied. The update is effective for ~~fiscal years~~annual periods, including interim periods within those annual periods, beginning after December 15, ~~2018 and~~2020, with early adoption permitted, including adoption in any interim ~~periods within those fiscal years. We are currently~~period. A prospective or retrospective transition approach must be elected. The Company is evaluating the ~~effect that the adoption~~impact of this guidance on the Company’s consolidated financial statements.

On January 1, 2018, the Company adopted ASU No. 2017-12,Derivatives and Hedging (Topic 815) — Targeted Improvements to Accounting for Hedging Activities, which simplifies the accounting for derivatives. For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of other comprehensive income, reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and presented in the same income statement line item as the earnings effect of the hedged item. The Company recorded a cumulative effect adjustment to accumulated other comprehensive income (loss) with a corresponding adjustment to the opening balance of retained earnings related to the elimination of the separate measurement of ineffectiveness for its cash flow hedges, upon adoption. The adjustments were not material to the Company’s consolidated financial statements. We refer you to Note 8. “Fair Value Measurements and Derivatives” in these notes to consolidated financial statements.

On January 1, 2018, the Company adopted ASU No. 2016-16,Income Taxes (Topic 740) — Intra-Entity Transfers of Assets Other Than Inventory,which requires companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. The Company recorded, upon adoption, a cumulative-effect adjustment to retained earnings of $19.1 million, which captures the write-off of previously unamortized deferred income tax expense from past intra-entity transfers involving assets other than inventory not previously recognized under accounting principles generally accepted in the U.S.

In December 2017, the Tax Cuts and Jobs Act (“the Act”) was enacted. Among other provisions, the Act reduced the corporate income tax rate from 35% to 21%. Also in December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses the recognition of provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes required by the Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. As of September 30, 2018, the Company has not completed the accounting for the tax effects of enactment of the Act; however, as described below, the Company has made reasonable provisional best estimates, which are subject to change. The most significant impact of the Act for the Company was a $7.4 million reduction of the value of net deferred tax liabilities (which represent future tax expenses) recorded in 2017 as a discrete tax benefit resulting from the corporate tax rate reduction from 35% to 21%. Any adjustments to the provisional amount through the end of 2018 will be recorded as adjustments to income tax expense in income from operations. The provisional amounts incorporate assumptions made based upon the Company’s current interpretation of the Act and may change as the Company receives additional clarification and implementation guidance. Other aspects of the Act are either not applicable or not expected to have a material impact on ~~our~~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. Early~~2019, with early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ~~We do~~The Company does not expect to early adopt this guidance. ~~We are currently evaluating the impact of the~~The Company will evaluate, upon adoption of this guidance, ~~to our~~the impact of this guidance on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15 which amends Topic 230 (Statement of Cash Flows) to eliminate discrepancies in reporting certain items in the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods with early adoption permitted. The transition should be made using a retrospective approach. We do not believe that the adoption of this guidance will be material to our consolidated statements of cash flows.

In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842),which sets out the principles for the recognition, measurement, presentation and disclosure of leases. The update was issuedto increase transparency and comparability among organizations byrecognizing rights and obligations resulting from leases ~~for both parties to a contract (i.e. lessees and lessors). The ASU requires lessees to recognize~~as lease assets and liabilities on the balance sheetand disclosing key information about leasing arrangements for ~~the rights and obligations created by all~~ leases with ~~terms~~a term of ~~more than~~ 12 ~~months.~~months or more. The ~~ASU further~~update modifies lessors’ classification criteria for leases and the accounting for sales-type and direct financing leases. The ~~ASU will also require~~update requires qualitative and quantitative disclosures designed to give financial statement users additional information on the amount, timing, and uncertainty of cash flows arising from leases. The ~~ASU~~update is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The ~~ASU~~Company has engaged a third party to assist in reviewing the Company’s existing leases and evaluating the Company’s existing contracts to identify those that are considered to be leases under the new guidance. The Company plans to adopt the practical expedients offered by the guidance and is evaluating the impact of those expedients upon adoption. The update is to be applied ~~using~~retrospectively with a modified retrospective approach. To evaluate the impact of the adoption of this guidance, we are currently reviewing our existing leases and evaluating contracts to determine what might be considered a lease under the new guidance.

In May 2014, the FASB issued ASU No. 2014-09 which requires entities to recognize revenue through the application of a five-step model, including identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligation and recognition of revenue as the entity satisfies the performance obligations. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. In August 2015, the FASB issued ASU No. 2015-14 deferring the effective date for one year. We expect to adopt a modified retrospective application for annual periods beginning after December 15, 2017. In April 2016, the FASB issued ASU No. 2016-10 which does not change the core principlecumulative-effect adjustment on January 1, 2019. Upon implementation of the guidance, ~~in ASU No. 2014-09 but clarifies two aspects: identifying performance~~the Company expects to increase, on its consolidated balance sheet, both assets and liabilities to reflect the lease rights and obligations, respectively, and the ~~licensing implementation guidance, while retaining the~~Company expects to make additional related principles for those areas. In May 2016, the FASB issued ASU No. 2016-11 which is a rescission of Securities and Exchange Commission guidance related to the issuance of ASU No. 2014-09. In May 2016, the FASB issued ASU No. 2016-12 which addresses improvements to the guidance on revenue from contracts from customers regarding collectability, noncash consideration, and completed contracts at transition. Additionally, it provides a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The effective date of ASU No. 2016-10, ASU No. 2016-11 and ASU No. 2016-12 is upon adoption of ASU No. 2014-09. We have initiated an assessment of our systems, data and processes related to the implementation of these ASUs. This assessment is expected to be completed during 2017. Additionally, we are currently evaluating our performance obligations and believe that our application of the guidance could result in changes in classification and will result in additional disclosures. ~~We also are evaluating other criteria such as the timing of contract terms, gross and net presentation and other items that the guidance addresses.~~

The carrying amounts of intangible assets subject to amortization are included ~~within~~in other long-term ~~assets. As of September 30, 2017,~~assets in the ~~carrying amount~~consolidated balance sheets.

Intangible assets consisted of the indefinite-lived license is included in prepaid expenses and other assets as it is held for sale. 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):

The following table sets forth the ~~Company’s estimated~~ aggregate amortization ~~expense~~of intangible assets for ~~each of~~ the ~~five years below~~periods presented (in thousands):

The following table sets forth the estimated annual aggregate amortization of intangible assets for the periods presented (in thousands):

Accumulated other comprehensive income (loss) consisted of the following for the ~~nine months ended September 30, 2017 was as follows~~periods presented (in thousands):

~~Accumulated other comprehensive income (loss) for the nine months ended September 30, 2016 was as follows (in thousands):~~

Property and equipment, net increased ~~$799.1 million~~$1.0 billion for the nine months ended September 30, ~~2017~~2018, primarily due to the delivery of Norwegian ~~Joy, ships under construction~~Bliss and ship improvement projects. As of September 30, 2017, in connection with the pending sale of our Hawaii land-based operations, we had $21.5 million of assets included in prepaid expenses and other, which are primarily related to property and equipment, and $7.7 million of liabilities included in accrued expenses and other liabilities. These assets and liabilities are classified as held for sale. Accordingly, for the three months ended September 30, 2017, these assets were measured at fair value less costs to sell which resulted in an impairment on assets of $2.9 million which was included in property and equipment and depreciation and amortization. The fair value was based on the purchase price which represents the observable market value of these operations which are level 2 within the fair value hierarchy. The sale was consummated on October 31, 2017. Upon the closing of the transaction, we accepted a promissory note from the buyer for approximately $9.7 million.

On April 19, 2018, we took delivery of Norwegian Bliss. To finance the payment due upon delivery, we had export financing in place for 80% of the contract price. The associated $850.0 million term loan bears interest at a fixed rate of 3.92% with a maturity date of April 19, 2030. Principal and interest payments are payable semiannually.

On April 4, 2018, we redeemed $135.0 million principal amount of the $700.0 million aggregate principal amount of outstanding 4.750% Senior Notes due 2021 (the “Notes”) at a price equal to 100% of the principal amount of the Notes being redeemed and paid the premium of $5.1 million and accrued interest of $1.9 million. The redemption also resulted in a write off of $1.2 million of certain fees. Following the partial redemption, $565.0 million aggregate principal amount of Notes remained outstanding.

In March 2018, as part of a public equity offering of NCLH’s ordinary shares owned by the Apollo Holders and Genting HK, NCLH repurchased 4,722,312 of its ordinary shares sold in the offering for approximately $263.5 million pursuant to its then existing share repurchase program.

As of September 30, 2018, the ownership of NCLH’s ordinary shares consisted of the following:

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).

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 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.

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), net 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.

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 New Revolving Loan Facility (as defined in Note 12— “Subsequent Events”,~~ is not considered significant, as we primarily conduct business with large, well-established financial institutions ~~that~~with which we have established relationships, ~~with~~ and ~~that~~which have credit risks acceptable to us, or the credit risk is spread out among ~~a large number of~~many creditors. We do not anticipate non-performance by any of our significant counterparties.

As of September 30, 2018, we had fuel swaps, which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately 0.9 million metric tons of our projected fuel purchases, maturing through December 31, 2020.

As of September 30, 2018, we had foreign currency forward contracts, matured foreign currency options and matured foreign currency collars which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. The ~~following table sets forth~~notional amount of our foreign currency forward contracts was €2.0 billion, or $2.3 billion based on the euro/U.S. dollar exchange rate as of September 30, 2018.

As of September 30, 2018, we had interest rate swap agreements which are used to hedge our exposure to interest rate movements and manage our interest expense. The notional amount of our outstanding debt associated with the interest rate swap agreements was $1.0 billion as of September 30, 2018.

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

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

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

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

As of September 30, 2017, we had fuel swaps maturing through December 31, 2020 which are used to mitigate the financial impact of volatility in fuel prices pertaining to approximately 1.4 million 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~~hedge accounting on accumulated other comprehensive income (loss) include the following (in thousands):

We had fuel swaps that matured which were not designated as cash flow hedges. These fuel swaps were previously designated as cash flow hedges and were dedesignated due to a change in our expected future fuel purchases mix.

The effects of cash flow hedge accounting on the consolidated ~~financial~~ statements of operations include the ~~fuel swaps which were dedesignated and recognized into earnings were as follows~~following (in thousands):

We had foreign currency options that matured which consisted of call options with deferred premiums. These options were 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 were delivered was less than the strike price under these option contracts, we would have paid the deferred premium and would not exercise the foreign currency options.

~~The effects on the consolidated financial statements of the foreign currency options which were designated as cash flow hedges were as follows (in thousands):~~

As of September 30, 2017, we had foreign currency forward contracts which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. The notional amount of our foreign currency forward contracts was €1.8 billion, or $2.1 billion based on the euro/U.S. dollar exchange rate as of September 30, 2017.

~~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):~~

The effects ~~on the consolidated financial statements~~ of ~~foreign currency forward contracts which were not designated as~~ cash flow ~~hedges were as follows~~hedge accounting on accumulated other comprehensive income (loss) include the following (in thousands):

~~We had foreign currency collars that matured and were used to mitigate the volatility of foreign currency exchange rates related to our ship construction contracts denominated in euros.~~

The effects of cash flow hedge accounting on the consolidated ~~financial~~ statements of operations include the ~~foreign currency collar which was designated as a cash flow hedge was as follows~~following (in thousands):

~~The effect on the consolidated financial statements of the foreign currency collar which was not designated as a cash flow hedge was as follows (in thousands):~~

As of September 30, 2017, we had interest rate swap agreements to hedge 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 $237.2 million as of September 30, 2017.

~~The effects on the consolidated financial statements of the interest rate swaps which were designated as cash flow hedges were as follows (in thousands):~~

As of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the fair value of our long-term debt, including the current portion, was ~~$6,796.4~~$6,693.9 million and ~~$6,525.7~~$6,448.6 million, respectively, which was ~~$62.0~~$13.9 million and ~~$11.6~~$23.5 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 resulting in Level 2 inputs in the fair value hierarchy. Market risk associated with our long-term variable rate debt is the potential increase in interest expense from an increase in interest rates. The calculation of the fair value of our long-term debt is considered a Level 2 input. ~~We refer you to Note 12— “Subsequent Events” for further information about our long-term debt.~~

The carrying amounts reported in the consolidated balance sheets of all other financial assets and liabilities approximate fair value.

As a result of NCLH’s adoption of ASU No. 2016-09, beginning in the first quarter of 2017, NCLH began accounting for forfeitures as they occur, rather than estimating expected forfeitures. Pursuant to the modified-retrospective application, the net cumulative effect of this change was recognized as a $2.2 million increase to retained earnings as of January 1, 2017 (we refer you to our consolidated statements of changes in shareholders’ equity).

The following istable sets forth a summary of option activity under NCLH’s Amended and Restated 2013 Performance Incentive Plan, ~~for the nine months ended September 30, 2017 (excludes the impact of~~including 208,335 previously awarded performance-based ~~options as no~~share option awards, for which a grant date ~~has been established):~~was established in 2018, for the period presented:

The following is a summary of NCLH’s restricted ~~NCLH~~ ordinary share activity for the ~~nine months ended September 30, 2017:~~period presented:

On March 1, ~~2017,~~2018, NCLH granted ~~1.7~~to certain employees 1.6 million time-based restricted share unit awards ~~to our employees~~ which vest equally over three years. ~~Additionally,~~Also on March 1, ~~2017,~~2018, NCLH ~~awarded 121,000 performance-based restricted share units~~also granted to certain members of our management team 0.5 million performance-based restricted share units, which vest upon the achievement of certain pre-established performance ~~targets.~~targets and which amount assumes the maximum level of achievement.

The following istable sets forth a summary of restricted share unit activity and includes 0.3 million previously awarded performance-based restricted share awards for which the grant date was established in 2018 (the number reported assumes the maximum level of achievement), for the period presented:

Share-based compensation expense for the three and nine months ended September 30, ~~2017 (excludes~~2018 was $29.0 million and $88.8 million, respectively, of which $24.9 million and $77.0 million, respectively, was recorded in marketing, general and administrative expense and $4.1 million and $11.8 million, respectively, was recorded in payroll and related expense, in the ~~impact~~consolidated statements of ~~329,146 previously awarded performance-based restricted share units as no grant date was established):~~operations.

~~The share-based~~Share-based compensation expense for the three and nine months ended September 30, 2017 was $21.5 million and $63.7 million, respectively, of which $18.6 million and $57.1 million, respectively, was recorded in marketing, general and administrative expense and $2.9 million and $6.6 million, respectively, was recorded in payroll and related ~~expense. The share-based compensation~~ expense ~~for~~in the ~~nine months ended September 30, 2017 was $63.7 million~~consolidated statements of ~~which $57.1 million was recorded in marketing, general and administrative expense and $6.6 million was recorded in payroll and related expense.~~operations.

Project Leonardo will introduce an additional ~~four~~six ships, ~~with expected delivery dates through 2025 and we have an option to introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. These four ships are~~ each approximately 140,000 Gross Tons with ~~approximately~~ 3,300 ~~Berths.~~Berths, with expected delivery dates from 2022 through 2027, subject to certain conditions. The effectiveness of the confirmed orders to construct two of the ships, expected to be delivered in 2026 and 2027, is contingent upon the Company’s entry into committed financing arrangements. We have a Breakaway Plus Class Ship, Norwegian Encore, with approximately 168,000 Gross Tons with 4,000 Berths, on order for delivery in the fall of 2019, and an Explorer Class Ship, Seven Seas Splendor, with approximately 55,000 Gross Tons with 750 Berths, on order for delivery in the winter of 2020. This ship is approximately 55,000 Gross Tons and 750 Berths. We have two Breakaway Plus Class Ships on order for delivery in the spring of 2018 and fall of 2019, respectively. These ships are approximately 168,000 Gross Tons each with approximately 4,000 Berths each.

The combined contract price of ~~these seven~~the aforementioned eight ships ~~was~~is approximately ~~€5.5~~€7.1 billion, or ~~$6.5~~$8.4 billion based on the euro/U.S. dollar exchange rate as of September 30, ~~2017. We~~2018. For six of the ships, we have obtained export credit financing, ~~in place that provides financing for~~which is expected to fund approximately 80% of the contract price of each ~~ship’s contract price. For ships~~ship expected to be delivered ~~after 2023, the contract price is~~through 2025, subject to ~~adjustment under~~ certain ~~circumstances.~~

~~In connection with the contracts to build the ships, we~~conditions. We do not anticipate any contractual breach or cancellation of the contracts to ~~occur. However,~~build these ships; however, if any ~~would~~were to 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.

In the normal course of our business, various 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 ~~the~~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. However, based on our current knowledge, we do not believe that the aggregate amount or range of reasonably possible losses with respect to these matters will be material to our consolidated results of operations, financial condition or cash flows. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery.

For the three and nine months ended September 30, 2018, other income (expense), net was income of $0.1 million and $11.4 million, respectively, primarily due to foreign currency exchange gains. For the three months ended September 30, 2017, other income (expense), net was aexpense of $3.3 million, ~~expense, primarily~~ due to foreign currency exchange ~~losses. For the three months ended September 30, 2016, the $5.3 million expense was due to foreign currency exchange and fuel swap derivative~~ losses. For the nine months ended September 30, 2017, ~~the~~other income (expense), net was expense of $11.7 million, ~~expense included~~due to foreign currency exchange losses, partially offset by a gain from an insurance claim. ~~For the nine months ended September 30, 2016, the $13.3 million expense included losses on fuel swap derivatives partially offset by gains on foreign exchange forward derivatives.~~

~~Income tax expense for 2017 reflects a tax benefit of $11.6 million associated with the reversal of prior years’ tax contingency reserves due to the expiration of the statute of limitations.~~

For the nine months ended September 30, ~~2017 and 2016,~~2018, we had non-cash investing activities ~~in connection with~~related to property and equipment of ~~$15.2~~$17.8 million and ~~$22.3~~net foreign currency adjustments of $4.5 million ~~respectively.~~related to euro-denominated debt related to the financing of two of our Project Leonardo ships. For the nine months ended September 30, 2017, we had non-cash investing activities ~~in connection with~~related to property and equipment of $15.2 million and non-cash investing activities related to capital leases of $13.3 million.

NCLC, a subsidiary of NCLH, entered into a Third Amended and Restated Credit Agreement, dated as of October 10, 2017, with a subsidiary of NCLC, as co-borrower, JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent and as collateral agent, and a syndicate of other banks party thereto as joint bookrunners, arrangers, codocumentation agents and lenders (the “Amended Senior Secured Credit Facility”), which amends and restates that certain Second Amended and Restated Credit Agreement, dated as of June 6, 2016, by and among NCLC, JPM, as administrative agent and as collateral agent, and a syndicate of other banks party thereto as joint bookrunners, arrangers, co-documentation agents and lenders (the “Existing Senior Secured Credit Facility”). The Amended Senior Secured Credit Facility amends the Existing Senior Secured Credit Facility to, among other things, (a) reprice and increase the existing $750 million revolving credit facility with a new $875 million revolving credit facility (the “New Revolving Loan Facility”), (b) reprice the approximately $1,412 million principal amount outstanding under the existing senior secured term A facility (the “New Term A Loan Facility”), and (c) add a new $375 million term B loan facility due 2021 (the “New Term B Loan Facility”). The applicable margin under the New Term A Loan Facility and New Revolving Loan Facility is determined by reference to a total leverage ratio, with an applicable margin of between 2.00% and 1.25% with respect to Eurocurrency loans and between 1.00% and 0.25% with respect to base rate loans. The margin for borrowings under the New Term A Loan Facility and New Revolving Loan Facility is 1.75% with respect to Eurocurrency borrowings and 0.75% with respect to base rate borrowings. The applicable margin under the New Term B Loan Facility is 1.75% with respect to Eurocurrency loans and 0.75% with respect to base rate loans. NCLC used proceeds from the New Term B Loan Facility and cash on hand for the Redemption (as defined below).

On October 10, 2017, NCLC completed the redemption of all its outstanding 4.625% Senior Notes due 2020 (“Notes”), at a price including accrued and unpaid interest, of $1,044.41 per $1,000 of outstanding principal amount of Notes so redeemed (the “Redemption”). No Notes remained outstanding after the redemption.

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

Certain statements in this report constitute forward-looking statements within the meaning of the U.S. federal securities laws 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 contained, or incorporated by reference, 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~~“intend,” “future” and 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 impact ~~of:~~of the following:

The above examples are not exhaustive and new risks, uncertainties and other factors emerge from time to time. 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 expect to operate in the future. These forward-looking statements speak only as of the date made. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement 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, except as required by law.

This report includes certain non-GAAP financial measures, such as Net Revenue, Net Yield, Net Cruise Cost, Adjusted Net ~~Revenue, Adjusted Net Yield, Adjusted Net~~ Cruise Cost Excluding Fuel, Adjusted ~~EBITDA, Adjusted~~ Net Income, Adjusted EPS and Adjusted ~~EPS.~~EBITDA. Definitions of these non-GAAP financial measures are included below. ~~For~~We refer you to “Results of Operations” below for further information about our non-GAAP financial measures including detailed adjustments made in calculating our non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial ~~measure, we refer you to “Results of Operations” below.~~measure.

Unless otherwise indicated in this report, the following terms have the meanings set forth below:

•~~Acquisition of Prestige.~~ ~~In November 2014, pursuant to the Merger Agreement, we acquired Prestige in a cash and stock transaction for total consideration of $3.025 billion, including the assumption of debt.~~

•~~Adjusted EBITDA.~~ ~~EBITDA adjusted for other income (expense), net and other supplemental adjustments.~~

•~~Adjusted EPS.~~ ~~Adjusted Net Income divided by the number of diluted weighted-average shares outstanding.~~

•~~Adjusted Net Cruise Cost Excluding Fuel.~~ ~~Net Cruise Cost Excluding Fuel expense adjusted for supplemental adjustments.~~

•~~Adjusted Net Income.~~ ~~Net income adjusted for supplemental adjustments.~~

•~~Adjusted Net Revenue.~~ ~~Net Revenue adjusted for supplemental adjustments.~~

•~~Adjusted Net Yield.~~ ~~Net Yield adjusted for supplemental adjustments.~~

•~~Bareboat Charter.~~ ~~The hire of a ship for a specified period of time whereby no crew or provisions are provided by the Company.~~

•~~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 and Norwegian Getaway.~~

•~~Breakaway Four Loan Facility.~~~~€729.9 million Breakaway four loan due 2029.~~

•~~Breakaway Plus Class Ships~~~~. Norwegian Escape, Norwegian Joy, Norwegian Bliss and a fourth ship on order.~~

•~~Business Enhancement Capital Expenditures~~~~. Capital expenditures other than those related to new ship construction and ROI Capital Expenditures.~~

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

•~~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, and depreciation and amortization.~~

•~~Existing Revolving Loan Facility.~~~~$750.0 million senior secured revolving credit facility that was amended and restated by the New Revolving Loan Facility on October 10, 2017.~~

•~~Explorer Class Ships.~~~~Regent’s Seven Seas Explorer and a second ship on order.~~

•~~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.~~

•~~Merger Agreement.~~ ~~Agreement and Plan of Merger, dated as of September 2, 2014, by and among Prestige, NCLH, Portland Merger Sub, Inc. and Apollo Management, L.P., as amended, for the Acquisition of Prestige.~~

•~~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.~~

•~~New Revolving Loan Facility~~~~. $875.0 million senior secured revolving credit facility which amends the Existing Revolving Loan Facility, maturing on June 6, 2021.~~

•~~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.~~

•~~Project Leonardo.~~~~The next generation of ships for our Norwegian brand.~~

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

•~~Secondary Equity Offering(s).~~~~Secondary public offering(s) of NCLH’s ordinary shares in August 2017, December 2015, August 2015, May 2015, March 2015, March 2014, December 2013 and August 2013.~~

•~~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.~~

We use certain non-GAAP financial measures, such as Net Revenue, ~~Adjusted Net Revenue, Net Yield, Adjusted~~ Net Yield, Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted ~~EBITDA, Adjusted~~ Net Income, Adjusted EPS and Adjusted ~~EPS,~~EBITDA, to enable us to analyze our performance. ~~See~~We refer you to “Terminology” above for the definitions of these and other non-GAAP financial measures. 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 we 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 the U.S., a portion of our revenue and expenses are denominated in foreign currencies, particularly British pound, Canadian dollar, euro and Australian dollar, 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. We also believe that Adjusted EBITDA is a useful measure in determining our performance as it reflects certain operating drivers of our 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 nor is it intended to be a measure of liquidity or cash flows from operations or a measure 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 Revenue and Adjusted Net Yield, which exclude certain business combination accounting entries, are non-GAAP financial measures that we believe are useful as supplemental measures in evaluating the performance of our operating business and provide greater transparency into our results of operations. Adjusted Net Income and Adjusted EPS are non-GAAP financial measures that exclude certain amounts and are used to supplement GAAP net income and EPS. We use Adjusted Net Income and Adjusted EPS as key performance measures of our earnings performance. 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. In addition, management uses Adjusted EPS as a performance measure for our incentive compensation. The amounts excluded in the presentation of these non-GAAP financial measures may vary from period to period; accordingly, our presentation of Adjusted Net ~~Revenue, Adjusted Net Yield, Adjusted Net~~ Income and Adjusted EPS may not be indicative of future adjustments or results. For example, for the ~~year~~nine months ended ~~December 31, 2016,~~September 30, 2018, we incurred ~~$28.0~~$6.3 million related to the extinguishment of debt due to the ~~refinancing~~partial redemption of ~~certain credit facilities.~~our 4.750% Senior Notes due 2021. We included this as an adjustment in the reconciliation of Adjusted Net Income since the extinguishment of debt is not representative of our day-to-day operations and we have included similar adjustments in prior periods; however, this adjustment did not occur in the comparable prior period or the three months ended September 30, 2018, each of which is presented with this Quarterly Report on Form 10-Q and this adjustment is therefore not included in the ~~periods presented within this Form 10-Q.~~reconciliation for these periods.

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 the most comparable GAAP measure presented in our consolidated financial statements below in the “Results of Operations” section.

~~Revenue~~We categorize revenue from our cruise and cruise-related activities ~~are categorized by us~~ as either “passenger ~~ticket revenue” and~~ticket” revenue or “onboard and ~~other~~other” revenue.” Passenger ticket revenue and onboard and other revenue vary according to the product offering, 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 Northern Hemisphere’s 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 guests purchase these items from us. Onboard and other revenue primarily consists of revenue from ~~gaming,~~casino, beverage sales, shore excursions, specialty dining, retail sales, spa services and photo ~~services as well as certain Bareboat Charter revenue. We record~~services. Our onboard revenue is derived from onboard activities we perform directly or that are performed by independent concessionaires, from which we receive a share of their revenue.

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,~~expense, related credit card fees, ~~costs associated with service charges,~~ certain port expenses and the costs associated with shore excursions and hotel accommodations included as part of the overall cruise purchase price.

•	Onboard and other primarily consists of direct costs incurred in connection with onboard and other revenue, including casino, beverage sales and shore excursions expenses.

•	Payroll and related consists of the cost of wages and benefits for shipboard employees and costs of certain inventory items, including food, for a third party that provides crew and other hotel services for certain ships.
•	Fuel includes fuel costs, the impact of certain fuel hedges and fuel delivery costs.
•	Food consists of food costs for passengers and crew on certain ships.

•	Other consists of repairs and maintenance, including Dry-dock costs, ~~that are incurred in connection with onboard and other revenue. These include costs incurred in connection with gaming, beverage sales and shore excursions.~~ Payroll and related consists of the cost of wages and benefits for shipboard employees and costs of certain inventory items, including food, for a third party that provides crew and other hotel services for certain ships. ~~Fuel includes fuel costs, the impact of certain fuel hedges and fuel delivery costs.~~ ~~Food consists of food costs for passengers and crew on certain ships.~~ ~~Other consists of repairs and maintenance (including Dry-dock costs),~~ ship insurance and other ship expenses.

Critical Accounting Policies

~~For a discussion of our critical accounting policies and estimates, see~~We refer you to “Critical Accounting Policies” included in our Annual Report ~~on Form 10-K for~~filed with the ~~year ended December 31, 2016~~SEC, under ~~the caption “Management’s~~“Item 7— Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.”~~Operations” for a discussion of our critical accounting policies and estimates. We have made no significant changes to our critical accounting policies and estimates from those described in our Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~

~~Table of Contents~~

~~However, in accordance with Item 303(a)(3)(ii) of Regulation S-K and Section V of SEC Release No. 33-8350, we are including additional disclosure which is presented below:~~

~~Asset Impairment~~

We review our long-lived assets, principally ships, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. We consider historical performance and future estimated results in our evaluation of potential impairment and then compare the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its fair value. We estimate fair value based on the best information available making whatever estimates, judgments and projections we considered necessary. The estimation of fair value is generally measured by discounting expected future cash flows at discount rates commensurate with the risk involved.

We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable. For our evaluation of goodwill and tradenames we use the Step 0 Test which allows us to first assess qualitative factors to determine whether it is more likely than not (i.e., more than 50%) that the fair value of a reporting unit is less than its carrying value. In order to make this evaluation, we consider the following circumstances:

General macroeconomic conditions such as a deterioration in general economic conditions; limitations on accessing capital; fluctuations in foreign exchange rates; or other developments in equity and credit markets;

Industry and market conditions such as a deterioration in the environment in which an entity operates; an increased competitive environment; a decline in market-dependent multiples or metrics (in both absolute terms and relative to peers); a change in the market for an entity’s products or services; or a regulatory or political development;

~~Changes in cost factors that have a negative effect on earnings and cash flows;~~

~~Overall financial performance (for both actual and expected performance);~~

~~Entity and reporting unit-specific events such as changes in management, key personnel, strategy, or customers; litigation; or a change in the composition or carrying amount of net assets; and~~

~~Share price (in both absolute terms and relative to peers).~~

We believe our estimates and judgments with respect to our long-lived assets, principally ships, and goodwill and other indefinite-lived intangible assets are reasonable. Nonetheless, if there was a material change in assumptions used in the determination of such fair values or if there is a material change in the conditions or circumstances that influence such assets, we could be required to record an impairment charge. If a material change occurred, we may conduct a quantitative assessment comparing the fair value of each reporting unit to its carrying value, including goodwill. This is called the Step I Test which consists of a combined approach using the expected future cash flows and market multiples to determine the fair value of the reporting units.

In the third quarter of 2016, based on the performance of the Oceania Cruises reporting unit, we performed an interim goodwill impairment evaluation consisting of a Step I Test. Based on that evaluation, we determined that there was no impairment of goodwill because its fair value exceeded its carrying value. For our annual impairment evaluation, we performed a Step 0 Test for the Norwegian reporting unit and Step I Tests for the Regent Seven Seas and the Oceania Cruises reporting units. As a result of the Step 0 Test for the Norwegian reporting unit, we determined there were no factors indicating it was more likely than not (i.e., more than 50%) that the fair value of the reporting unit was less than its carrying value. Based on the results of the Step 1 Tests, we determined there was no impairment of goodwill because the fair value of the Oceania Cruises and Regent Seven Seas reporting units exceeded their carrying values by 24% and 81%, respectively. However, if the fair value of any reporting unit declines in future periods, its goodwill may become impaired at that time. As of December 31, 2016 and September 30, 2017, there was $523.0 million, $462.1 million and $403.8 million of goodwill for the Oceania Cruises, Regent Seven Seas and Norwegian reporting units, respectively. As of December 31, 2016, our annual review consisting of the Step 0 and Step I Tests supported the carrying values of these assets. Subsequent to December 31, 2016, the Company has continued to monitor the results of each of these reporting units and will perform the necessary tests should events occur or circumstances change that indicate the carrying value of a reporting unit may not be recoverable.Report.

Quarterly Overview

Three ~~months ended~~Months Ended September 30, 2018 (“2018”) Compared to Three Months Ended September 30, 2017 (“2017”~~) compared to three months ended September 30, 2016 (“2016”~~)

Total revenue increased ~~11.2%~~12.5% to ~~$1.7~~$1.9 billion ~~compared to $1.5~~from $1.7 billion.

Net Revenue increased ~~12.5%~~11.8% to ~~$1.3~~$1.4 billion ~~compared to $1.1~~from $1.3 billion.

•	Net income and diluted EPS were $470.4 million and $2.11, respectively, as compared to $400.7 million and $1.74, respectively.
	20
•	Operating income increased to $550.3 million from $476.8 million.

~~Table of Contents~~

~~Net income and diluted EPS was $400.7 million and $1.74, respectively, compared to $342.4 million and $1.50, respectively.~~

~~Operating income was $476.8 million compared to $413.6 million.~~

Adjusted Net Income and Adjusted EPS in 2018 were ~~$427.0~~$506.4 million and ~~$1.86,~~$2.27, respectively, ~~in 2017,~~ which included $26.3 million of adjustments primarily consisting of expenses related to non-cash compensation and certain other adjustments. Adjusted Net Income and Adjusted EPS were $369.3 million and $1.62, respectively, in 2016, which included $26.9$36.0 million of adjustments primarily consisting of expenses related to non-cash compensation, amortization of intangible assets and certain other adjustments. Adjusted Net Income and Adjusted EPS in 2017 were $427.0 million and $1.86, respectively, which included $26.3 million of adjustments primarily consisting of expenses related to non-cash compensation and certain other adjustments.

Adjusted EBITDA improved ~~16.0%~~13.9% to ~~$635.1~~$723.5 million ~~compared to $547.4~~from $635.1 million.

We refer you to ~~our~~ “Results of Operations” below for a calculation of Net Revenue, Adjusted Net Income, Adjusted EPS and Adjusted EBITDA.

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,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenue
Passenger ticket		72.2	%		72.2	%		70.3	%		70.2	%		71.8	%		72.2	%		70.6	%		70.3	%
Onboard and other		27.8	%		27.8	%		29.7	%		29.8	%		28.2	%		27.8	%		29.4	%		29.7	%
Total revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cruise operating expense
Commissions, transportation and other		16.1	%		16.8	%		16.5	%		16.5	%		16.2	%		16.1	%		16.5	%		16.5	%
Onboard and other		6.0	%		6.1	%		6.0	%		6.1	%		6.3	%		6.0	%		6.0	%		6.0	%
Payroll and related		12.5	%		13.0	%		14.3	%		14.8	%		12.3	%		12.5	%		14.1	%		14.3	%
Fuel		5.5	%		5.8	%		6.4	%		6.6	%		5.4	%		5.5	%		6.2	%		6.4	%
Food		3.3	%		3.4	%		3.6	%		4.0	%		3.0	%		3.3	%		3.4	%		3.6	%
Other		7.4	%		7.7	%		8.9	%		9.4	%		6.8	%		7.4	%		8.6	%		8.9	%
Total cruise operating expense		50.8	%		52.8	%		55.7	%		57.4	%		50.0	%		50.8	%		54.8	%		55.7	%
Other operating expense
Marketing, general and administrative		12.2	%		11.8	%		14.2	%		13.5	%		12.7	%		12.2	%		14.7	%		14.2	%
Depreciation and amortization		8.1	%		7.5	%		9.1	%		8.5	%		7.7	%		8.1	%		8.9	%		9.1	%
Total other operating expense		20.3	%		19.3	%		23.3	%		22.0	%		20.4	%		20.3	%		23.6	%		23.3	%
Operating income		28.9	%		27.9	%		21.0	%		20.6	%		29.6	%		28.9	%		21.6	%		21.0	%
Non-operating income (expense)
Non-operating (expense) income
Interest expense, net		(4.0	)%		(4.1	)%		(4.4	)%		(5.0	)%		(3.7	)%		(4.0	)%		(4.3	)%		(4.4	)%
Other income (expense), net		(0.2	)%		(0.4	)%		(0.3	)%		(0.4	)%		0.0	%		(0.2	)%		0.2	%		(0.3	)%
Total non-operating income (expense)		(4.2	)%		(4.5	)%		(4.7	)%		(5.4	)%
Total non-operating expense														(3.7	)%		(4.2	)%		(4.1	)%		(4.7	)%
Net income before income taxes		24.7	%		23.4	%		16.3	%		15.2	%		25.9	%		24.7	%		17.5	%		16.3	%
Income tax expense		(0.4	)%		(0.3	)%		(0.4	)%		(0.2	)%		(0.6	)%		(0.4	)%		(0.4	)%		(0.4	)%
Net income		24.3	%		23.1	%		15.9	%		15.0	%		25.3	%		24.3	%		17.1	%		15.9	%

The following table sets forth selected statistical information:

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Passengers carried 658,139 635,654 1,756,350 1,761,967
Passenger Cruise Days 5,071,115 4,674,286 13,819,421 13,196,600
Capacity Days 4,590,789 4,209,562 12,811,155 12,175,012
Occupancy Percentage 110.5 % 111.0 % 107.9 % 108.4 %
21
~~Table of Contents~~
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Passengers carried 823,413 741,216 2,128,673 1,868,512
Passenger Cruise Days 5,493,932 5,071,115 15,177,982 13,819,421
Capacity Days 4,941,643 4,590,789 13,958,331 12,811,155
Occupancy Percentage 111.2 % 110.5 % 108.7 % 107.9 %

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2017
Constant
Currency 2016 2017 2017
Constant
Currency 2016
Passenger ticket revenue $ 1,192,023 $ 1,190,650 $ 1,071,815 $ 2,916,731 $ 2,933,448 $ 2,630,405
Onboard and other revenue 459,715 459,715 412,921 1,229,891 1,229,891 1,118,798
Total revenue 1,651,738 1,650,365 1,484,736 4,146,622 4,163,339 3,749,203
Less:
Commissions, transportation and other expense 266,173 265,718 249,519 683,628 687,665 618,492
Onboard and other expense 98,476 98,476 90,661 250,254 250,254 230,416
Net Revenue 1,287,089 1,286,171 1,144,556 3,212,740 3,225,420 2,900,295
Non-GAAP Adjustment:
Deferred revenue (1) — — 300 — — 1,057
Adjusted Net Revenue $ 1,287,089 $ 1,286,171 $ 1,144,856 $ 3,212,740 $ 3,225,420 $ 2,901,352
Capacity Days 4,590,789 4,590,789 4,209,562 12,811,155 12,811,155 12,175,012
Gross Yield $ 359.79 $ 359.49 $ 352.71 $ 323.67 $ 324.98 $ 307.94
Net Yield $ 280.36 $ 280.16 $ 271.89 $ 250.78 $ 251.77 $ 238.22
Adjusted Net Yield $ 280.36 $ 280.16 $ 271.97 $ 250.78 $ 251.77 $ 238.30
~~(1)~~ ~~Reflects deferred revenue fair value adjustments related to the Acquisition of Prestige that were made pursuant to business combination accounting rules.~~
Three Months Ended September 30, Nine Months Ended September 30,
2018 2018
Constant
Currency 2017 2018 2018
Constant
Currency 2017
Passenger ticket revenue $ 1,334,460 $ 1,336,565 $ 1,192,023 $ 3,301,372 $ 3,280,610 $ 2,916,731
Onboard and other revenue 523,896 523,896 459,715 1,372,561 1,372,561 1,229,891
Total revenue 1,858,356 1,860,461 1,651,738 4,673,933 4,653,171 4,146,622
Less:
Commissions, transportation and other expense 301,349 301,614 266,173 769,564 764,601 683,628
Onboard and other expense 117,747 117,747 98,476 281,232 281,232 250,254
Net Revenue $ 1,439,260 $ 1,441,100 $ 1,287,089 $ 3,623,137 $ 3,607,338 $ 3,212,740
Capacity Days 4,941,643 4,941,643 4,590,789 13,958,331 13,958,331 12,811,155
Gross Yield $ 376.06 $ 376.49 $ 359.79 $ 334.85 $ 333.36 $ 323.67
Net Yield $ 291.25 $ 291.62 $ 280.36 $ 259.57 $ 258.44 $ 250.78

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, Three Months Ended September 30, Nine Months Ended September 30,
2017 2017
Constant
Currency 2016 2017 2017
Constant
Currency 2016 2018 2018
Constant
Currency 2017 2018 2018
Constant
Currency 2017
Total cruise operating expense $ 838,165 $ 837,839 $ 784,734 $ 2,310,205 $ 2,314,015 $ 2,155,115 $ 928,944 $ 927,984 $ 838,165 $ 2,559,818 $ 2,546,877 $ 2,310,205
Marketing, general and administrative expense 202,221 201,603 174,813 587,914 588,183 504,694 235,436 236,167 202,221 688,986 686,729 587,914
Gross Cruise Cost 1,040,386 1,039,442 959,547 2,898,119 2,902,198 2,659,809 1,164,380 1,164,151 1,040,386 3,248,804 3,233,606 2,898,119
Less:
Commissions, transportation and other expense 266,173 265,718 249,519 683,628 687,665 618,492 301,349 301,614 266,173 769,564 764,601 683,628
Onboard and other expense 98,476 98,476 90,661 250,254 250,254 230,416 117,747 117,747 98,476 281,232 281,232 250,254
Net Cruise Cost 675,737 675,248 619,367 1,964,237 1,964,279 1,810,901 745,284 744,790 675,737 2,198,008 2,187,773 1,964,237
Less: Fuel expense 91,231 91,231 86,250 266,780 266,780 248,529 99,643 99,643 91,231 288,286 288,286 266,780
Net Cruise Cost Excluding Fuel 584,506 584,017 533,117 1,697,457 1,697,499 1,562,372 645,641 645,147 584,506 1,909,722 1,899,487 1,697,457
Less Non-GAAP Adjustments:
Non-cash deferred compensation (1) 878 878 792 2,524 2,524 2,375
Non-cash share-based compensation (2) 21,444 21,444 16,840 63,664 63,664 48,289
Non-cash deferred compensation expense (1) 543 543 878 1,627 1,627 2,524
Non-cash share-based compensation expense (2) 28,962 28,962 21,444 88,797 88,797 63,664
Secondary Equity Offering expenses (3) 462 462 — 462 462 — — — 462 482 482 462
Severance payments and other expenses (4) — — 2,587 2,399 2,399 5,486
Severance payments and other fees (4) — — — — — 2,399
Acquisition of Prestige expenses (5) — — 1,696 500 500 4,710 — — — — — 500
Other (6) 999 999 — 2,605 2,605 — — — 999 (912 ) (912 ) 2,605
Adjusted Net Cruise Cost Excluding Fuel $ 560,723 $ 560,234 $ 511,202 $ 1,625,303 $ 1,625,345 $ 1,501,512 $ 616,136 $ 615,642 $ 560,723 $ 1,819,728 $ 1,809,493 $ 1,625,303

Capacity Days 4,590,789 4,590,789 4,209,562 12,811,155 12,811,155 12,175,012 4,941,643 4,941,643 4,590,789 13,958,331 13,958,331 12,811,155
Gross Cruise Cost per Capacity Day $ 226.62 $ 226.42 $ 227.94 $ 226.22 $ 226.54 $ 218.46 $ 235.63 $ 235.58 $ 226.62 $ 232.75 $ 231.66 $ 226.22
Net Cruise Cost per Capacity Day $ 147.19 $ 147.09 $ 147.13 $ 153.32 $ 153.33 $ 148.74 $ 150.82 $ 150.72 $ 147.19 $ 157.47 $ 156.74 $ 153.32
Net Cruise Cost Excluding Fuel per Capacity Day $ 127.32 $ 127.21 $ 126.64 $ 132.50 $ 132.50 $ 128.33 $ 130.65 $ 130.55 $ 127.32 $ 136.82 $ 136.08 $ 132.50
Adjusted Net Cruise Cost Excluding Fuel per Capacity Day $ 122.14 $ 122.03 $ 121.44 $ 126.87 $ 126.87 $ 123.33 $ 124.68 $ 124.58 $ 122.14 $ 130.37 $ 129.64 $ 126.87

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~~Table of Contents~~

(1) Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense.
(2) Non-cash share-based compensation expenses related to equity awards, which are included in marketing, general and administrative expense and payroll and related expense.
(3) ~~Expenses related to a~~ Secondary Equity Offering ~~which~~expenses are included in marketing, general and administrative expense.
(4) Severance payments and other ~~expenses~~fees related to restructuring costs and other severance arrangements ~~which~~ are included in marketing, general and administrative expense.
(5) ~~Expenses related to the~~ Acquisition of Prestige ~~which~~expenses are included in marketing, general and administrative expense.
(6) ~~Expenses~~Other primarily related to expenses and reimbursements for certain legal costs ~~which are~~ included in marketing, general and administrative expense.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
Net income 400,692 342,378 661,075 560,853
Non-GAAP Adjustments:
Non-cash deferred compensation (1) 878 792 2,524 2,375
Non-cash share-based compensation (2) 21,444 16,840 63,664 48,289
Secondary Equity Offering expenses (3) 462 — 462 —
Severance payments and other expenses (4) — 2,587 2,399 5,486
Acquisition of Prestige expenses (5) — 1,696 500 4,710
Deferred revenue (6) — 300 — 1,057
Amortization of intangible assets (7) 7,568 5,267 22,704 15,802
Derivative adjustment (8) — — — (1,185 )
Deferred financing fees and other (9) — — — 11,714
Impairment on assets held for sale (10) 2,935 — 2,935 —
Tax benefit (11) (7,950 ) (558 ) (7,950 ) (558 )
Other (12) 999 — 2,605 —
Adjusted Net Income $ 427,028 $ 369,302 $ 750,918 $ 648,543
Diluted weighted–average shares outstanding 229,816,956 227,598,607 229,157,257 227,859,617
Diluted earnings per share $ 1.74 $ 1.50 $ 2.88 $ 2.46
Adjusted EPS $ 1.86 $ 1.62 $ 3.28 $ 2.85
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Net income $ 470,378 $ 400,692 $ 800,209 $ 661,075
Non-GAAP Adjustments:
Non-cash deferred compensation expenses (1) 864 878 2,591 2,524
Non-cash share-based compensation expenses (2) 28,962 21,444 88,797 63,664
Secondary Equity Offering expenses (3) — 462 482 462
Severance payments and other fees (4) — — — 2,399
Acquisition of Prestige expenses (5) — — — 500
Amortization of intangible assets (6) 6,222 7,568 18,666 22,704
Extinguishment of debt (7) — — 6,346 —
Impairment on assets held for sale (8) — 2,935 — 2,935
Tax benefit (9) — (7,950 ) — (7,950 )
Other (10) — 999 (912 ) 2,605
Adjusted Net Income $ 506,426 $ 427,028 $ 916,179 $ 750,918
Diluted weighted–average shares outstanding 222,752,738 229,816,956 225,422,385 229,157,257
Diluted earnings per share $ 2.11 $ 1.74 $ 3.55 $ 2.88
Adjusted EPS $ 2.27 $ 1.86 $ 4.06 $ 3.28

(1) Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related ~~expense.~~expense and other income (expense), net.
(2) Non-cash share-based compensation expenses related to equity awards, which are included in marketing, general and administrative expense and payroll and related expense.
(3) ~~Expenses related to a~~ Secondary Equity Offering ~~which~~expenses are included in marketing, general and administrative expense.
(4) Severance payments and other ~~expenses~~fees related to restructuring costs and other severance arrangements ~~which~~ are included in marketing, general and administrative expense.
(5) ~~Expenses related to the~~ Acquisition of Prestige ~~which~~expenses are included in marketing, general and administrative expense.
(6) Deferred revenue fair value adjustments related to the Acquisition of Prestige that were made pursuant to business combination accounting rules, which are primarily included in passenger ticket revenue.
~~(7)~~ Amortization of intangible assets related to the Acquisition of Prestige, which are included in depreciation and amortization expense.
~~(8)~~(7) Losses ~~and net gains for the fair value adjustment~~on extinguishments of ~~a foreign exchange collar which does not receive hedge accounting and losses~~debt due to the ~~dedesignation~~partial redemption of ~~certain fuel swaps. These adjustments are included in other income (expense), net.~~
~~(9)~~ ~~Expenses primarily related to the write-off of deferred financing fees related to the refinancing of certain credit facilities,~~our 4.750% Senior Notes due 2021, which are included in interest expense, net.
~~(10)~~(8) Loss on ~~planned~~ sale of Hawaii land-based operations.
~~(11)~~(9) Tax ~~benefits~~benefit primarily due to the reversal of ~~prior years’~~ tax contingency ~~reserves.~~reserves in 2017.
~~(12)~~(10) ~~Expenses~~Other primarily related to expenses and reimbursements for certain legal costs, which are included in marketing, general and administrative expense.

23 24
~~Table of Contents~~

EBITDA and Adjusted EBITDA were calculated as follows (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30, Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016 2018 2017 2018 2017
Net income $ 400,692 $ 342,378 $ 661,075 $ 560,853 $ 470,378 $ 400,692 $ 800,209 $ 661,075
Interest expense, net 66,339 60,662 183,495 188,836 69,540 66,339 202,226 183,495
Income tax expense 6,527 5,241 15,369 8,944 10,456 6,527 18,400 15,369
Depreciation and amortization expense 134,532 111,575 376,878 317,480
Depreciation and amortization 143,700 134,532 415,648 376,878
EBITDA 608,090 519,856 1,236,817 1,076,113 694,074 608,090 1,436,483 1,236,817
Other expense (1) 3,262 5,333 11,686 13,281
Other (income) expense (1) (98 ) 3,262 (11,354 ) 11,686
Non-GAAP Adjustments:
Non-cash deferred compensation (2) 878 792 2,524 2,375
Non-cash share-based compensation (3) 21,444 16,840 63,664 48,289
Non-cash deferred compensation expenses (2) 543 878 1,627 2,524
Non-cash share-based compensation expenses (3) 28,962 21,444 88,797 63,664
Secondary Equity Offering expenses (4) 462 — 462 — — 462 482 462
Severance payments and other expenses (5) — 2,587 2,399 5,486
Severance payments and other fees (5) — — — 2,399
Acquisition of Prestige expenses (6) — 1,696 500 4,710 — — — 500
Deferred revenue (7) — 300 — 1,057
Other (8) 999 — 2,605 —
Other (7) — 999 (912 ) 2,605
Adjusted EBITDA $ 635,135 $ 547,404 $ 1,320,657 $ 1,151,311 $ 723,481 $ 635,135 $ 1,515,123 $ 1,320,657

(1) Primarily consists of gains and losses, net for ~~derivative contracts and~~ foreign currency exchanges.
(2) Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses ~~which~~ are included in payroll and related expense.
(3) Non-cash share-based compensation expenses related to equity awards ~~which~~ are included in marketing, general and administrative expense and payroll and related expense.
(4) ~~Expenses related to a~~ Secondary Equity Offering ~~which~~expenses are included in marketing, general and administrative expense.
(5) Severance payments and other ~~expenses~~fees related to restructuring costs and other severance arrangements, which are included in marketing, general and administrative expense.
(6) ~~Expenses related to the~~ Acquisition of Prestige ~~which~~expenses are included in marketing, general and administrative expense.
(7) Deferred revenue fair value adjustments related to the Acquisition of Prestige that were made pursuant to business combination accounting rules, which are primarily included in passenger ticket revenue.
~~(8)~~ ~~Expenses~~Other primarily related to expenses and reimbursements for certain legal costs, which are included in marketing, general and administrative expense.

Three ~~months ended~~Months Ended September 30, 2018 (“2018”) Compared to Three Months Ended September 30, 2017 (“2017”) ~~compared to three months ended September 30, 2016 (“2016”)~~
Revenue

Total revenue increased ~~11.2%~~12.5% to $1.9 billion in 2018, as compared to $1.7 billion in ~~2017 compared to $1.5 billion in 2016 primarily due to an increase in Capacity Days.~~2017. Gross Yield increased ~~2.0%~~4.5%. Net Revenue increased ~~12.5%~~11.8% to $1.4 billion in ~~2017 to~~2018, from $1.3 billion ~~from $1.1 billion~~ in ~~2016~~2017, due to an increase in Capacity Days of ~~9.1%~~7.6% and an increase in Net Yield of ~~3.1%~~3.9%. The increase in Capacity Days was primarily due to Norwegian Bliss joining our fleet in the ~~delivery~~second quarter of ~~Norwegian Joy in April 2017.~~2018. The increase in Gross Yield and Net Yield was primarily due to an increase in passenger ticket pricing and ~~higher onboard and other revenue. Adjusted Net Revenue in 2016 includes a deferred revenue fair value adjustment of $0.3 million related to the Acquisition of Prestige.~~Occupancy Percentage. On a Constant Currency basis, Net Yield ~~and Adjusted Net Yield~~ increased ~~3.0% in 2017 compared to 2016.~~4.0%.
Expense

~~Gross Cruise Cost increased 8.4% in 2017 compared to 2016 due to an increase in total cruise operating expense and marketing, general and administrative expenses.~~ Total cruise operating expense increased ~~6.8%~~10.8% in ~~2017~~2018, as compared to ~~2016~~2017, primarily due to the increase in Capacity ~~Days~~Days. Gross Cruise Cost increased 11.9% in 2018, as ~~discussed above~~compared to 2017, primarily due to higher total cruise operating expense, and ~~crew payroll~~to a lesser extent, due to higher marketing, general and ~~related costs.~~administrative expenses. Total other operating expense increased ~~17.6%~~12.6% in ~~2017~~2018, as compared to ~~2016 due to an increase in marketing,~~2017. Marketing, general and administrative expenses ~~and an increase in depreciation and amortization expense. The increase in marketing, general and administrative expense was~~increased primarily due to ~~pay for performance~~higher incentive ~~expenses.~~compensation expense. Depreciation and amortization expense increased primarily due to the ~~ship additions~~addition of Norwegian Bliss and ship improvement projects. ~~On a Capacity Day basis,~~ Net Cruise Cost per Capacity Day increased 2.5% (2.4% on a Constant Currency basis) due to higher marketing, general and administrative expenses. Adjusted Net Cruise Cost Excluding Fuel ~~was relatively unchanged~~per Capacity Day increased 2.1% (2.0% on ~~an actual and constant currency basis primarily due to an increase in marketing, general and administrative expenses, primarily offset by decreases in cruise operating expenses.~~a Constant Currency basis).

Interest expense, net was $69.5 million in 2018, as compared to $66.3 million in ~~2017 compared to $60.7 million in 2016. Interest expense for 2017 reflects an~~2017. The increase in ~~average~~interest expense reflects additional debt ~~balances outstanding primarily associated~~incurred in connection with the delivery of ~~new ships~~Norwegian Bliss in April 2018, Project Leonardo financing, and ~~newbuild installments, as well as~~ higher interest rates due to an increase in ~~LIBOR.~~
24
~~Table~~London Interbank Offered Rate (“LIBOR”). The increase in interest expense was partially offset by the benefit from the October 2017 full redemption of ~~Contents~~our 4.625% Senior Notes due 2020 and the benefit from the April 2018 partial $135.0 million redemption of our 4.75% Senior Notes due 2021.

Other income (expense), net was anincome of $0.1 million in 2018, as compared to expense of $3.3 million in ~~2017 compared to an expense of $5.3 million~~2017. Other income in ~~2016. In 2017, the expense~~2018 was primarily ~~related~~due to ~~losses~~gains on foreign currency ~~exchange. In 2016, the~~exchange; whereas, other expense in 2017 was primarily ~~related~~due to ~~unrealized and realized losses on fuel swap derivative hedge contracts and foreign exchange derivative contracts and~~ losses on foreign currency exchange.

25
~~In 2017, we had an income~~
Income tax expense ofwas $10.5 million in 2018, as compared to $6.5 million ~~compared to $5.2 million~~ in ~~2016.~~2017. Income tax in 2017 reflects a tax benefit of $11.6 million associated with the reversal of prior years’ tax contingency reserves due to the expiration of the statute of limitations.

Nine ~~months ended~~Months Ended September 30, 2018 (“2018”) Compared to Nine Months Ended September 30, 2017 (“2017”) ~~compared to nine months ended September 30, 2016 (“2016”)~~
Revenue

Total revenue increased ~~10.6%~~12.7% to $4.7 billion in 2018, as compared to $4.1 billion in ~~2017 compared to $3.7 billion in 2016 primarily due to an increase in Capacity Days.~~2017. Gross Yield increased ~~5.1%~~3.5%. Net Revenue increased ~~10.8%~~12.8% to $3.6 billion in ~~2017 to~~2018, from $3.2 billion ~~from $2.9 billion~~ in ~~2016~~2017, due to an increase in Capacity Days of ~~5.2%~~9.0% and an increase in Net Yield of ~~5.3%~~3.5%. The increase in Capacity Days was primarily due to ~~the delivery of~~ Norwegian Joy ~~in April 2017, Seven Seas Explorer in June 2016, Sirena~~and Norwegian Bliss joining our fleet in ~~April 2016~~the second quarter of 2017 and ~~a reduction in the amount of lost days due to Dry-docks in 2017 compared to 2016.~~2018, respectively. The increase in Gross Yield and Net Yield was primarily due to an increase in passenger ticket pricing and ~~higher onboard and other revenue. Adjusted Net Revenue in 2016 includes a deferred revenue fair value adjustment of $1.1 million related to the Acquisition of Prestige.~~Occupancy Percentage. On a Constant Currency basis, Net Yield ~~and Adjusted Net Yield~~ increased ~~5.7% compared to 2016.~~3.1%.

Expense

~~Gross Cruise Cost increased 9.0% in 2017 compared to 2016 due to an increase in total cruise operating expense and marketing, general and administrative expenses.~~ Total cruise operating expense increased ~~7.2%~~10.8% in ~~2017~~2018, as compared to ~~2016~~2017, primarily due to the increase in Capacity ~~Days~~Days. Gross Cruise Cost increased 12.1% in 2018, as ~~discussed above~~compared to 2017, due to higher total cruise operating expense and, ~~crew payroll~~to a lesser extent, due to higher marketing, general and ~~related costs.~~administrative expenses. Total other operating expense increased ~~17.3%~~14.5% in ~~2017~~2018, as compared to ~~2016 due to an increase in marketing,~~2017. Marketing, general and administrative expenses ~~and depreciation and amortization expense. The increase in marketing, general and administrative expense was~~increased primarily due to ~~pay for performance~~higher incentive ~~expenses.~~compensation expense. Depreciation and amortization expense increased primarily due to the ~~ship~~ additions of Norwegian Joy and ~~the~~Norwegian Bliss and ship improvement projects. ~~On a Capacity Day basis,~~ Net Cruise Cost per Capacity Day increased ~~3.1% (on an actual and~~2.7% (2.2% on a Constant Currency basis) due to ~~an increase in~~higher marketing, general and administrative expenses and, ~~crew payroll~~to a lesser extent, due to higher maintenance and ~~related costs.~~repairs, including Dry-dock expenses. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased ~~2.9% (on an actual and~~2.8% (2.2% on a Constant Currency basis) ~~primarily due to the increase in expenses discussed above.~~.

Interest expense, net was $202.2 million in 2018, as compared to $183.5 million in ~~2017 compared to $188.8 million in 2016. Interest expense for 2017 reflects higher interest rates driven by an~~2017. The increase in ~~LIBOR, as well as an increase~~interest expense reflects additional debt incurred in ~~average debt balances outstanding primarily associated~~connection with the delivery of ~~new ships~~Norwegian Joy and ~~newbuild installments. Interest~~Norwegian Bliss in the second quarter of 2017 and 2018, respectively, Project Leonardo financing, and higher interest rates due to an increase in LIBOR. The increase in interest expense ~~for 2016~~was partially offset by the benefit from the October 2017 full redemption of our 4.625% Senior Notes due 2020 and the benefit from the April 2018 partial $135.0 million redemption of our 4.75% Senior Notes due 2021. Also included ain 2018 is $6.3 million of redemption premium and write-off of ~~$11.5 million of deferred financing~~ fees ~~related to~~in connection with the ~~refinancing of certain of our credit facilities in 2016.~~partial redemption.

Other income (expense), net was anincome of $11.4 million in 2018, as compared to expense of $11.7 million in ~~2017 compared to an expense of $13.3 million~~2017. Other income in ~~2016. In 2017, the expense~~2018 was primarily ~~related~~due to gains on foreign currency exchange; whereas, other expense in 2017 was primarily due to losses on foreign currency exchange, partially offset by ~~income from~~ an insurance settlement. ~~In 2016, the~~
Income tax expense was ~~primarily related~~$18.4 million in 2018, as compared to ~~unrealized and realized losses on fuel swap derivative hedge contracts and losses on foreign exchange partially offset by gains on foreign exchange derivative hedge contracts.~~
~~In 2017, we had an income tax expense of~~ $15.4 million ~~compared to $8.9 million~~ in ~~2016.~~2017. Income tax in 2017 reflects a tax benefit of $11.6 million associated with the reversal of prior years’ tax contingency reserves due to the expiration of the statute of limitations.

Liquidity and Capital Resources

General

As of September 30, ~~2017,~~2018, our liquidity was ~~$1.3~~$1.2 billion consisting of ~~$522.9~~$286.5 million in cash and cash equivalents and ~~$750.0~~$875.0 million available under our ~~Existing~~ Revolving Loan Facility. In October 2017, we entered into a Third Amended and Restated Credit Agreement, which amended our Existing Revolving Loan Facility by, among other things, increasing the existing $750 million revolving credit facility with a new $875 million revolving credit facility. We refer you to our notes to consolidated financial statements, Note 12— “Subsequent Events” for further information about our long-term debt. Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service.

As of September 30, ~~2017,~~2018, we had a working capital deficit of ~~$1.7~~$2.3 billion. This deficit included ~~$1.3~~$1.6 billion of advance ticket sales, which represents the total revenue we collect in advance of sailing dates and accordingly ~~are~~is substantially more like deferred revenue balances rather than actual current cash liabilities. Our business model, along with our ~~New~~ Revolving Loan Facility, allows us to operate with a working capital deficit and still meet our operating, investing and financing needs.
25
~~Table of Contents~~

We evaluate potential sources of additional liquidity, including the capital markets, in the ordinary course of business. We will continue to evaluate opportunities to optimize our capital structure, taking into consideration our current and expected capital requirements, our assessment of prevailing market conditions and expectations regarding future conditions, and the contractual and other restrictions to which we are subject.
26
Sources and Uses of Cash

~~In this section, references~~Nine Months Ended September 30, 2018 (“2018”) Compared to ~~“2017” refer to the nine months ended~~Nine Months Ended September 30, 2017 ~~and references to “2016” refer to the nine months ended September 30, 2016.~~(“2017”)

Net cash provided by operating activities was $1.7 billion in 2018, as compared to $1.4 billion in ~~2017 as compared to $1.1 billion in 2016.~~2017. The net cash provided by operating activities included timing differences in cash receipts and payments relating to operating assets and liabilities. ~~Net income~~Advance ticket sales increased ~~to $661.1~~by $316.3 million in ~~2017 from $560.9~~2018 compared to $187.1 million in ~~2016.~~2017. Without the adoption of Topic 606, advance ticket sales would have increased by $308.0 million in 2018. We refer you to Note 2— “Summary of Significant Accounting Policies— Revenue and Expense Recognition” in the notes to consolidated financial statements for a discussion of the effects of the adoption of Topic 606.

Net cash used in investing activities was $1.3 billion in 2018, as compared to $1.2 billion in 2017, primarily related to payments for ~~the delivery of Norwegian Joy,~~ ship ~~improvements~~deliveries, ships under construction and ~~shoreside~~ship improvement projects.
Net cash used in ~~investing~~financing activities was ~~$1.0 billion~~$313.7 million in ~~2016~~2018, as compared to net cash provided by financing activities of $199.7 million in 2017. The net cash used in financing activities in 2018 was primarily due to net repayments of our Revolving Loan Facility and other loan facilities, offset by borrowings on newbuild facilities. We made a partial redemption in April 2018 of $135.0 million of our 4.75% Senior Notes due 2021. Additionally, in 2018, we repurchased $463.5 million of our ordinary shares and incurred deferred financing fees related to ~~payments for the delivery~~financing of ~~Seven Seas Explorer, ship improvements, ships under construction and shoreside projects.~~
newbuild ships. Net cash provided by financing activities ~~was $200.0 million~~ in 2017 was primarily due to the proceeds from our Breakaway Four Loan, ~~Facility~~ partially offset by the repayments of other loan facilities, our net repayment of our ~~Existing Revolving Loan Facility~~then existing revolving loan facility and payment of deferred financing fees and other. Net cash used in financing activities was $99.0 million in 2016 primarily due to net repayments of our Existing Revolving Loan Facility and other loan facilities and the repurchase of our ordinary shares and deferred financing fees and other.fees.

Future Capital Commitments

Future capital commitments consist of contracted commitments, including ship construction contracts, and future expected capital expenditures necessary for ~~operations.~~operations as well as our ship refurbishment projects. As of September 30, ~~2017,~~2018, our anticipated capital expenditures were $0.3 billion for the remainder of ~~2017,~~2018 and $1.4 billion and $0.9 billion for the ~~year ending December 31, 2018 and $1.2 billion for the year~~years ending December 31, 2019 ~~of which we~~and 2020, respectively. We have export credit financing in place for the anticipated expenditures related to ship construction contracts of ~~$48 million~~$0.05 billion for the remainder of ~~2017, $0.8 billion for~~ 2018, ~~and~~ $0.6 billion for ~~2019.~~2019 and $0.5 billion for 2020. These future expected capital expenditures will significantly increase our depreciation and amortization expense as we take delivery of the ships.

Project Leonardo will introduce an additional ~~four~~six ships, ~~with expected delivery dates through 2025 and we have an option to introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. These four ships are~~ each approximately 140,000 Gross Tons with ~~approximately~~ 3,300 ~~Berths.~~Berths, with expected delivery dates from 2022 through 2027, subject to certain conditions. The effectiveness of the confirmed orders to construct two of the ships, expected to be delivered in 2026 and 2027, is contingent, among other things, upon the Company’s entry into committed financing arrangements, with terms acceptable to us. We have a Breakaway Plus Class Ship, Norwegian Encore, approximately 168,000 Gross Tons with 4,000 Berths, on order for delivery in the fall of 2019, and an Explorer Class Ship, Seven Seas Splendor, approximately 55,000 Gross Tons with 750 Berths, on order for delivery in the winter of 2020. This ship is approximately 55,000 Gross Tons and 750 Berths. We have two Breakaway Plus Class Ships on order for delivery in the spring of 2018 and fall of 2019, respectively. These ships are approximately 168,000 Gross Tons each with approximately 4,000 Berths each.
The combined contract price of ~~these seven~~the aforementioned eight ships ~~was~~is approximately ~~€5.5~~€7.1 billion, or ~~$6.5~~$8.4 billion based on the euro/U.S. dollar exchange rate as of September 30, ~~2017. We~~2018. For six of the ships, we have obtained export credit financing, ~~in place that provides financing for~~which is expected to fund approximately 80% of the contract price of each ~~ship’s contract price. For ships~~ship expected to be delivered ~~after 2023, the contract price is~~through 2025, subject to ~~adjustment under~~ certain ~~circumstances.~~
~~In connection with the contracts to build the ships, we~~conditions. We do not anticipate any contractual ~~breaches~~breach or cancellation of the contracts to ~~occur. However,~~build these ships; however, if any ~~would~~were to 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 and nine months ended September 30, ~~2017~~2018 was ~~$6.2~~$6.4 million and ~~$21.8~~$23.2 million, respectively, and for the three and nine months ended September 30, ~~2016~~2017 it was ~~$8.9~~$6.2 million and ~~$24.9~~$21.8 million, respectively, primarily associated with the construction of our newbuild ships.

Off-Balance Sheet Transactions

None.

26 27
~~Table of Contents~~

Contractual Obligations

As of September 30, ~~2017,~~2018, our contractual obligations with initial or remaining terms in excess of one year, including interest payments on long-term debt obligations, ~~were as follows~~included the following (in thousands):

Total Less than
1 year 1-3 years 3-5 years More than
5 years Total Less than
1 year 1-3 years 3-5 years More than
5 years
Long-term debt (1) $ 6,734,832 605,827 1,240,277 3,229,750 1,658,978 $ 6,679,612 $ 679,908 $ 2,205,859 $ 1,882,111 $ 1,911,734
Operating leases (2) 140,525 15,927 30,532 28,044 66,022 131,737 17,456 31,180 27,562 55,539
Ship construction contracts (3) 6,193,555 1,111,116 1,358,988 1,115,161 2,608,290 5,184,623 107,904 1,446,033 1,971,744 1,658,942
Port facilities (4) 144,822 32,647 43,656 27,424 41,095 1,002,302 61,757 116,169 116,432 707,944
Interest (5) 1,022,705 226,295 400,423 231,596 164,391 1,016,039 219,023 399,608 189,715 207,693
Other ~~(6)~~(7) 166,255 52,697 69,510 26,168 17,880 1,428,885 250,748 431,078 357,587 389,472
Total(8) $ 14,402,694 $ 2,044,509 $ 3,143,386 $ 4,658,143 $ 4,556,656 $ 15,443,198 $ 1,336,796 $ 4,629,927 $ 4,545,151 $ 4,931,324

(1) ~~Includes~~Long-term debt includes discounts and premiums aggregating $0.4 ~~million. Also includes~~million and capital leases. ~~The amount~~Long-term debt excludes deferred financing fees which are ~~included~~a direct deduction from the carrying value of the related debt liability in the consolidated balance ~~sheets as an offset to long-term debt.~~sheets.
(2) ~~Primarily~~Operating leases are primarily for offices, motor vehicles and office equipment.
(3) ~~For~~Ship construction contracts are for our newbuild ships based on the euro/U.S. dollar exchange rate as of September 30, ~~2017.~~2018. Export credit financing is in place from syndicates of banks. The amount does not include the two Project Leonardo ships which are subject to financing, as described below.
(4) ~~Primarily for~~Port facilities represent our usage of certain port facilities.
(5) ~~Includes~~Interest includes fixed and variable rates with LIBOR held constant as of September 30, ~~2017.~~2018.
(6) ~~Future~~Other includes future commitments for service, maintenance and other Business Enhancement Capital ~~Expenditure~~Expenditures contracts.
(7) Other also includes revisions to amounts previously included in our Annual Report, for the periods of less than 3 years.
(8) $0.5 million of unrecognized tax benefits were excluded from the “Total” contractual obligations as of September 30, 2018 because an estimate of the timing of future tax settlements cannot be reasonably determined.

The two Project Leonardo ships expected to be delivered in 2026 and 2027 are not included in the table above ~~does not~~because the effectiveness of the confirmed orders to construct the two ships is contingent, among other things, upon the Company’s entry into committed financing arrangements. The ship construction contract commitments include ~~$0.5 million of unrecognized tax benefits.~~the following (in thousands):
Total Less than
1 year 1-3 years 3-5 years More than
5 years
Ship construction contracts $ 1,856,640 $ 37,133 $ — $ — $ 1,819,507

Other

Certain 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

Certain of 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. Substantially all of our ships and other property and equipment are pledged as collateral for certain of our debt. We believe we were in compliance with these covenants as of September 30, ~~2017.~~2018.
In addition, our existing debt agreements restrict, and any of our future debt arrangements may restrict, among other things, the ability of our subsidiaries, including NCLC, to make distributions and/or pay dividends to NCLH and our ability to pay cash dividends to our shareholders. We are a holding company and depend upon our subsidiaries for their ability to pay distributions to us to finance any dividend or pay any other obligations of NCLH. However, we do not believe that these restrictions have had or are expected to have an impact on our ability to meet any cash obligations.

The impact of changes in world economies and especially the global credit markets can create 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.

28
We believe our cash on hand, expected future operating cash inflows, additional available borrowings under our ~~New~~ Revolving Loan Facility and our ability to issue debt securities or additional equity securities, 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. 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 notional, 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.

27
~~Table of Contents~~
Interest Rate Risk

As of September 30, ~~2017,~~2018, we had interest rate swap agreements to ~~hedge our exposure to interest rate movements and to~~ manage our interest ~~expense.~~expense by hedging the interest rate risks associated with variable rates on our outstanding borrowings. As of September 30, ~~2017, 61%~~2018, 73% of our debt was fixed and ~~39%~~27% was variable, which includes the effects of the interest rate swaps. The notional amount of our outstanding debt associated with the interest rate swap agreements was $1.0 billion as of September 30, 2018. As of December 31, 2017, 54% of our debt was fixed and 46% was variable, which includes the effects of the interest rate swaps. The notional amount of outstanding debt associated with the interest rate swap agreements was $218.6 million as of December 31, 2017. The change from December 31, 2017 to September 30, ~~2017~~2018 was ~~$237.2 million.~~ due to additional interest rate swaps executed and the repayment of variable rate debt.
Based on our September 30, ~~2017~~2018 outstanding variable rate debt balance, a one percentage point increase in annual LIBOR interest rates would increase our annual interest expense by approximately ~~$25.9~~$18.4 million excluding the effects of capitalization of interest.

Foreign Currency Exchange Rate Risk

As of September 30, ~~2017,~~2018, we had foreign currency derivatives 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 payments on our ship construction contracts. The payments not hedged aggregate ~~€3.5~~€2.4 billion or ~~$4.1~~$2.7 billion based on the euro/U.S. dollar exchange rate as of September 30, 2018. As of December 31, 2017, the payments not hedged aggregated €3.3 billion, or $4.0 billion, based on the euro/U.S. dollar exchange rate as of December 31, 2017. The change from December 31, 2017 to September 30, 2018 was due to the delivery of a ship in April 2018 and additional foreign exchange derivatives executed. We estimate that a 10% change in the euro as of September 30, ~~2017~~2018 would result in a ~~$0.4~~$0.3 billion 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 ~~10.9%~~10.7% and ~~11.0%~~10.9% for the three months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and 11.3% and 11.5% for ~~each of~~ the nine months ended September 30, 2018 and 2017, ~~and 2016.~~respectively. We use fuel derivative agreements to mitigate the financial impact of fluctuations in fuel prices and as of September 30, ~~2017,~~2018, we had hedged approximately ~~75%, 65%~~64%, 48% and ~~26%~~38% of our remaining ~~2017,~~ 2018, 2019 and 2020, respectively, projected metric tons of fuel purchases. As of December 31, 2017, we had hedged approximately 65%, 48% and 26% of our 2018, 2019 and 2020, respectively, projected metric tons of fuel purchases. The change in fuel price risk from December 31, 2017 to September 30, 2018 was due to additional fuel hedges executed.
We estimate that a 10% increase in our weighted-average fuel price would increase our anticipated ~~2017~~2018 fuel expense by ~~$8.7~~$11.9 million. This increase would be partially offset by an increase in the fair value of our fuel swap agreements of ~~$5.2~~$6.3 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~~and other inputs such as fuel types, fuel curves, creditworthiness of the counterparty and the Company, as well as other data points.
29

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 such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Securities Exchange Act”), as of September 30, ~~2017.~~2018. 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 management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, ~~2017~~2018, 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 rules and forms of the SEC, 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, ~~2017~~2018 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.

28
~~Table of Contents~~
PART II. OTHER INFORMATION

Item 1. Legal Proceedings
On September 21, 2018, a purported class-action lawsuit was filed by Marta and Jerry Phillips and others against NCL Corporation Ltd. in the United States District Court for the Southern District of Florida relating to the marketing and sales of our Booksafe Travel Protection Plan. The plaintiffs purport to represent an alleged class of passengers who purchased Booksafe Travel Protection Plans. The complaint alleges that the Company concealed that it received proceeds on the sale of the travel insurance portion of the plan. We believe we have meritorious defenses to the claim and that any liability which may arise as a result of this action will not have a material impact on our consolidated financial statements.

In the normal course of our business, various 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. However, based on our current knowledge, we do not believe that the aggregate amount or range of reasonably possible losses with respect to these matters will be material to our consolidated results of operations, financial condition or cash flows. 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 ~~2016~~ Annual Report ~~on Form 10-K~~ for a discussion of the risk factors that affect our business and financial results. We wish to caution the reader that the risk factors discussed in “Item 1A. Risk Factors” in our ~~2016~~ Annual Report, ~~on Form 10-K,~~ elsewhere in this report or other SEC filings, could cause future results to differ materially from those stated in any forward-looking statements.
Other than the risk factors set forth below, there have been no material changes in our risk factors from those disclosed in our Annual Report.
30
Breaches in data security or other disturbances to our information technology and other networks could impair our operations and have a material adverse impact on our business, financial condition and results of operations.
The integrity and reliability of our information technology systems and other networks are crucial to our business operations. Disruptions to these systems or networks could impair our operations and have an adverse impact on our financial results and negatively affect our reputation and customer demand. In addition, certain networks are dependent on third-party technologies, systems and service providers for which there is no certainty of uninterrupted availability. Among other things, actual or threatened natural disasters (e.g., hurricanes, earthquakes, tornadoes, fires, floods or similar events), information systems failures, computer viruses, denial of service attacks and other cyber-attacks may cause disruptions to our information technology, telecommunications and other networks. While we have and continue to invest in business continuity, disaster recovery, data restoration plans and data and information technology security, we cannot completely insulate ourselves from disruptions that could result in adverse effects on our operations and financial results. We carry limited business interruption insurance for certain shoreside operations, subject to limitations, exclusions and deductibles.
We have made significant investments in our information technology systems to optimize booking procedures, enhance the marketing power of our websites and control costs. As part of our ordinary business operations, we and certain of our third-party service providers collect, process, transmit and store a large volume of personally identifiable information, including email addresses, home addresses and financial data such as credit card information. The security of the systems and networks where we and our service providers store this data is a critical element of our business. We review and update our systems and have implemented processes and procedures to protect against security breaches and unauthorized access to our data. Despite our implementation of security measures, our systems and networks are vulnerable to computer viruses, malware, worms, hackers and other security issues, including physical and electronic break-ins, router disruption, sabotage or espionage, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), impersonation of authorized users and coordinated denial-of-service attacks. For example, in October 2018, we discovered limited instances of unauthorized access to certain employee e-mail communications, some of which contained proprietary business and personally identifiable information. We have implemented additional safeguards, and we do not believe that we experienced any material losses related to this incident; however, there can be no assurance that this or any other breach or incident will not have a material impact on our operations and financial results in the future. In addition, we may not be in a position to promptly address attacks or unauthorized access or to implement adequate preventative measures if we are unable to immediately detect such attacks. Our failure to successfully prevent, mitigate or timely respond to any unauthorized use of our information systems to gain access to sensitive information, corrupt data or create general disturbances in our operations systems could impair our ability to conduct business and damage our reputation.
We are also subject to laws relating to privacy of personal data, including European Union data privacy regulations. The compromise of our information systems resulting in the loss, disclosure, misappropriation of or access to the personally identifiable information of our guests, prospective guests or employees could result in governmental investigation, civil liability or regulatory penalties under laws protecting the privacy of personal information, any or all of which could disrupt our operations and materially adversely affect our business. Additionally, any material failure by us or our service providers to maintain compliance with the Payment Card Industry security requirements or to rectify a data security issue may result in fines and restrictions on our ability to accept credit cards as a form of payment.
In the event of a data security breach of our systems and/or third-party systems or a denial of service attack, we may incur costs associated with the following: response, notification, forensics, regulatory investigations, public relations, consultants, credit identity monitoring, credit freezes, fraud alert, credit identity restoration, credit card cancellation, credit card reissuance or replacement, data restoration, regulatory fines and penalties, vendor fines and penalties, legal fees, damages and settlements. In addition, data security breaches or denial of service attacks may cause business interruption, information technology disruption, disruptions as a result of regulatory investigation or litigation, digital asset loss related to corrupted or destroyed data, damage to our reputation, damages to intangible property and other intangible damages, such as loss of consumer confidence, all of which could impair our operations and have an adverse impact on our financial results.
31
Evolving requirements and regulations regarding data privacy and protection and any actual or perceived compliance failures by us could increase our liability and costs and otherwise materially adversely affect our business operations.
We process and store sensitive information relating to our guests, employees, business partners and others and we are subject to requirements and regulations regarding data privacy and protection in multiple jurisdictions. Government regulators, privacy advocates and individuals are increasingly scrutinizing how companies collect, process, store, share and transmit personal data. New laws governing data privacy and protection, such as the European Union’s General Data Protection Regulation (“GDPR”) have been enacted and more are being considered worldwide. The GDPR contains stringent data privacy and protection requirements and enables regulators to impose significant penalties for non-compliance. The regulatory framework for data privacy and protection is uncertain for the foreseeable future, and it is possible that legal and regulatory obligations may continue to increase and may be interpreted and applied in a manner that is inconsistent or possibly conflicting from one jurisdiction to another.
Any actual or perceived failure by us or our business partners to comply with posted privacy policies, federal, state or international data privacy and protection laws and regulations, or privacy commitments contained in our contracts could result in proceedings against us by governmental entities or others and significant fines, which could have a material adverse effect on our business and operating results and harm our reputation. Additionally, if third parties we work with, such as vendors, violate applicable laws or regulations or our policies, such violations may also result in increased liability for us and have an adverse effect on our business.
Existing and future legal and regulatory restrictions on our ability to collect and use data could also negatively affect our ability to market our business, result in increased compliance costs, and otherwise affect our business processes, all of which could have an adverse effect on our financial results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

On April ~~29, 2014,~~17, 2018, NCLH’s Board of Directors ~~authorized, and NCLH announced,~~approved a three-year share repurchase program ~~for~~(the “Repurchase Program”) authorizing NCLH to purchase up to ~~$500.0 million. The share repurchase program was scheduled~~$1.0 billion of NCLH’s ordinary shares. Pursuant to ~~expire on April 29, 2017, but was extended through April 29, 2020. Under this program,~~the Repurchase Program, NCLH may ~~make repurchases~~repurchase its ordinary shares from time to time, in amounts, at prices and at such times as it deems appropriate, subject to market conditions and other considerations. Under the Repurchase Program, shares may be repurchased in open market intransactions or privately negotiated transactions, inincluding structured and derivative transactions such as accelerated ~~repurchase programs or in structured~~ share repurchase ~~programs,~~transactions, and ~~any repurchases~~ may be made ~~pursuant to~~under a plan complying with Rule 10b5-1 ~~plans.~~ under the Securities Exchange Act.
There was no share repurchase activity during the three months ended September 30, ~~2017,~~2018, and as of September 30, ~~2017, $263.5~~2018, approximately $800.0 million remained available for repurchases of ~~our~~NCLH’s outstanding ordinary shares under the ~~share repurchase program.~~Repurchase Program.
~~Item 5. Other Information~~
~~None.~~
Item 6. Exhibits

~~2.1~~10.1 Employment Agreement ~~and Plan of Merger, dated as of September 2, 2014,~~ by and ~~among Prestige Cruises International, Inc., Norwegian Cruise Line Holdings~~between NCL (Bahamas) Ltd.~~, Portland Merger Sub, Inc.~~ and ~~Apollo Management, L.P.~~Mark Kempa, entered into on September 10, 2018 (incorporated herein by reference to Exhibit ~~2.1~~10.1 to Norwegian Cruise Line Holdings Ltd.’s Current Report on Form 8-K filed on September ~~4, 2014~~11, 2018 (File No. 001-35784))
~~2.2~~ Amendment No. 1 to the Agreement and Plan of Merger, dated as of October 6, 2014, by and among Prestige Cruises International, Inc., Norwegian Cruise Line Holdings Ltd., Portland Merger Sub, Inc. and Apollo Management, L.P. (incorporated herein by reference to Exhibit 2.1 to Norwegian Cruise Line Holdings Ltd.’s Form 8-K filed on October 8, 2014 (File No. 001-35784))
10.1* ~~Letter Regarding Amendment to Frank J. Del Rio’s Executive Employment Agreement, dated August 1, 2017†~~
10.2* ~~Form of Norwegian Cruise Line Holdings Ltd. Performance-based Restricted Share Unit Award Agreement (August 2017)~~†

10.3* ~~Amendment No. 12, dated August 24, 2017, to Office Lease Agreement, dated December 1, 2006, as amended, by and between SPUS7 Miami ACC, LP and NCL (Bahamas) Ltd.~~

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
29
~~Table of Contents~~
101* The following unaudited consolidated financial statements are from Norwegian Cruise Line Holdings Ltd.’s Quarterly Report on Form 10-Q for the ~~quarter~~quarterly period ended September 30, ~~2017,~~2018, formatted in Extensible Business Reporting Language (XBRL), as follows:

(i) the Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2018 and ~~2016;~~2017;
(ii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2017~~2018 and ~~2016;~~2017;
(iii) the Consolidated Balance Sheets as of September 30, ~~2017~~2018 and December 31, ~~2016;~~2017;
(iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2018 and ~~2016;~~2017;
(v) the Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, ~~2017~~2018 and ~~2016;~~2017; and
(vi) the Notes to the Consolidated Financial Statements, tagged in summary and detail.
* Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan.
30

~~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/ FRANK J. DEL RIO
Name: Frank J. Del Rio
Title: President and Chief Executive Officer
(Principal Executive Officer)

By: /s/ ~~WENDY~~MARK A. ~~BECK~~ KEMPA
Name: ~~Wendy~~Mark A. ~~Beck~~Kempa
Title: Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)

Dated: November 9, ~~2017~~2018

33
31

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		2017		2016		2018			2017		2018			2017
Net income	$	400,692	$	342,378	$	661,075	$	560,853	$	470,378		$	400,692	$	800,209		$	661,075
Other comprehensive income:
Shipboard Retirement Plan		104		107		313		323		107			104		319			313
Cash flow hedges:
Net unrealized gain		97,276		37,051		221,512		112,508		15,365			97,276		48,047			221,512
Amount realized and reclassified into earnings		11,644		18,327		31,593		76,658		(10,706	)		11,644		(19,214	)		31,593
Total other comprehensive income		109,024		55,485		253,418		189,489		4,766			109,024		29,152			253,418
Total comprehensive income	$	509,716	$	397,863	$	914,493	$	750,342	$	475,144		$	509,716	$	829,361		$	914,493

	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	522,904		$	128,347		$	286,461		$	176,190
Accounts receivable, net		56,764			63,215			46,562			43,961
Inventories		78,915			66,255			95,950			82,121
Prepaid expenses and other assets		206,251			153,276			298,435			216,065
Total current assets		864,834			411,093			727,408			518,337
Property and equipment, net		10,916,824			10,117,689			12,029,140			11,040,488
Goodwill		1,388,931			1,388,931			1,388,931			1,388,931
Tradenames		817,525			817,525			817,525			817,525
Other long-term assets		277,003			238,673			353,118			329,588
Total assets	$	14,265,117		$	12,973,911		$	15,316,122		$	14,094,869
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt	$	605,827		$	560,193		$	679,908		$	619,373
Accounts payable		45,059			38,002			59,423			53,433
Accrued expenses and other liabilities		550,774			541,753			664,106			513,717
Advance ticket sales		1,327,002			1,172,870			1,648,742			1,303,498
Total current liabilities		2,528,662			2,312,818			3,052,179			2,490,021
Long-term debt		6,002,877			5,838,494			5,875,252			5,688,392
Other long-term liabilities		195,974			284,873			190,601			166,690
Total liabilities		8,727,513			8,436,185			9,118,032			8,345,103
Commitments and contingencies (Note 8)
Commitments and contingencies (Note 10)
Shareholders’ equity:
Ordinary shares, $.001 par value; 490,000,000 shares authorized; 233,770,580 shares issued and 228,458,619 shares outstanding at September 30, 2017 and 232,555,937 shares issued and 227,243,976 shares outstanding at December 31, 2016		233			232
Ordinary shares, $.001 par value; 490,000,000 shares authorized; 235,419,374 shares issued and 221,622,947 shares outstanding at September 30, 2018 and 233,840,523 shares issued and 228,528,562 shares outstanding at December 31, 2017								235			233
Additional paid-in capital		3,973,350			3,890,119			4,100,291			3,998,694
Accumulated other comprehensive income (loss)		(61,055	)		(314,473	)
Accumulated other comprehensive income								56,118			26,966
Retained earnings		1,864,331			1,201,103			2,744,206			1,963,128
Treasury shares (5,311,961 ordinary shares at September 30, 2017 and December 31, 2016, at cost)		(239,255	)		(239,255	)
Treasury shares (13,796,427 and 5,311,961 ordinary shares at September 30, 2018 and December 31, 2017, respectively, at cost)								(702,760	)		(239,255	)
Total shareholders’ equity		5,537,604			4,537,726			6,198,090			5,749,766
Total liabilities and shareholders’ equity	$	14,265,117		$	12,973,911		$	15,316,122		$	14,094,869

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2018			2017
Cash flows from operating activities
Net income	$	661,075		$	560,853		$	800,209		$	661,075
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		385,957			327,366
(Gain) loss on derivatives		(71	)		1,007
Depreciation and amortization								420,154			385,957
Gain on derivatives								—			(71	)
Deferred income taxes, net		16,035			707			3,998			16,035
Write-off of deferred financing fees		—			11,537
Loss on extinguishment of debt								6,346			—
Provision for bad debts and inventory		1,592			1,767			3,420			1,592
Share-based compensation expense		63,664			48,289			88,797			63,664
Net foreign currency adjustments								(4,494	)		—
Changes in operating assets and liabilities:
Accounts receivable, net		571			(11,286	)		(5,649	)		571
Inventories		(13,923	)		(9,133	)		(14,237	)		(13,923	)
Prepaid expenses and other assets		(14,774	)		(16,197	)		(34,668	)		(14,774	)
Accounts payable		3,956			2,551			3,003			3,956
Accrued expenses and other liabilities		68,425			(9,149	)		136,954			68,425
Advance ticket sales		187,131			180,447			316,268			187,131
Net cash provided by operating activities		1,359,638			1,088,759			1,720,101			1,359,638
Cash flows from investing activities
Additions to property and equipment, net		(1,129,514	)		(915,936	)		(1,361,678	)		(1,129,514	)
Promissory note receipts								755			—
Settlement of derivatives		(35,255	)		(34,300	)		64,796			(35,255	)
Net cash used in investing activities		(1,164,769	)		(950,236	)		(1,296,127	)		(1,164,769	)
Cash flows from financing activities
Repayments of long-term debt		(1,006,620	)		(2,687,621	)		(1,233,499	)		(1,006,620	)
Repayments to Affiliate		—			(18,522	)
Proceeds from long-term debt		1,217,060			2,687,355			1,491,352			1,217,060
Proceeds from employee related plans		28,063			7,215			26,642			28,063
Net share settlement of restricted share units		(6,342	)		—			(13,840	)		(6,342	)
Purchases of treasury shares		—			(49,999	)
Deferred financing fees and other		(32,473	)		(37,457	)
Net cash provided by (used in) financing activities		199,688			(99,029	)
Repurchase of shares								(463,505	)		—
Early redemption premium								(5,154	)		—
Deferred financing fees								(115,699	)		(32,473	)
Net cash (used in) provided by financing activities								(313,703	)		199,688
Net increase in cash and cash equivalents		394,557			39,494			110,271			394,557
Cash and cash equivalents at beginning of period		128,347			115,937			176,190			128,347
Cash and cash equivalents at end of period	$	522,904		$	155,431		$	286,461		$	522,904

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
North America	$	997,550	$	873,062	$	2,724,298	$	2,493,101
Europe		763,680		679,168		1,227,046		1,125,274
Asia-Pacific		77,986		79,439		499,377		268,383
Other		19,140		20,069		223,212		259,864
Total revenue	$	1,858,356	$	1,651,738	$	4,673,933	$	4,146,622

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1618

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2729

Item 4.	Controls and Procedures	2830

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2930

Item 1A.	Risk Factors	2930

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

~~Item 5.~~32	~~Other Information~~	29

Item 6.	Exhibits	2932

SIGNATURES		3133

	Ordinary Shares		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Shares			Total Shareholders’ Equity			Ordinary Shares		Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Treasury Shares			Total Shareholders’ Equity
Balance, December 31, 2015	$	232	$	3,814,536		$	(412,650	)	$	568,018	$	(189,256	)	$	3,780,880
Share-based compensation		—		48,289			—			—		—			48,289
Issuance of shares under employee related plans		—		7,215			—			—		—			7,215
Treasury shares		—		—			—			—		(49,999	)		(49,999	)
Other comprehensive income, net		—		—			189,489			—		—			189,489
Net income		—		—			—			560,853		—			560,853
Balance, September 30, 2016	$	232	$	3,870,040		$	(223,161	)	$	1,128,871	$	(239,255	)	$	4,536,727
Balance, December 31, 2016	$	232	$	3,890,119		$	(314,473	)	$	1,201,103	$	(239,255	)	$	4,537,726		$	232	$	3,890,119		$	(314,473	)	$	1,201,103		$	(239,255	)	$	4,537,726
Share-based compensation		—		63,664			—			—		—			63,664			—		63,664			—			—			—			63,664
Issuance of shares under employee related plans		1		28,062			—			—		—			28,063			1		28,062			—			—			—			28,063
Change in accounting policy (share-based forfeitures)		—		(2,153	)		—			2,153		—			—			—		(2,153	)		—			2,153			—			—
Net share settlement of restricted share units		—		(6,342	)		—			—		—			(6,342	)		—		(6,342	)		—			—			—			(6,342	)
Other comprehensive income, net		—		—			253,418			—		—			253,418			—		—			253,418			—			—			253,418
Net income		—		—			—			661,075		—			661,075			—		—			—			661,075			—			661,075
Balance, September 30, 2017	$	233	$	3,973,350		$	(61,055	)	$	1,864,331	$	(239,255	)	$	5,537,604		$	233	$	3,973,350		$	(61,055	)	$	1,864,331		$	(239,255	)	$	5,537,604

Balance, December 31, 2017																		233		3,998,694			26,966			1,963,128			(239,255	)		5,749,766
Share-based compensation																		—		88,797			—			—			—			88,797
Issuance of shares under employee related plans																		2		26,640			—			—			—			26,642
Repurchase of shares																		—		—			—			—			(463,505	)		(463,505	)
Net share settlement of restricted share units																		—		(13,840	)		—			—			—			(13,840	)
Cumulative change in accounting policy																		—		—			(12	)		(19,131	)		—			(19,143	)
Other comprehensive income, net																		—		—			29,164			—			—			29,164
Net income																		—		—			—			800,209			—			800,209
Balance, September 30, 2018																	$	235	$	4,100,291		$	56,118		$	2,744,206		$	(702,760	)	$	6,198,090

	As Reported		Adjustments			Balances Without Adoption of Topic 606
Prepaid expenses and other assets	$	298,435	$	(59,881	)	$	238,554
Total assets	$	15,316,122	$	(59,881	)	$	15,256,241
Advance ticket sales	$	1,648,742	$	(59,881	)	$	1,588,861
Total liabilities and shareholders’ equity	$	15,316,122	$	(59,881	)	$	15,256,241

	September 30, 2017									September 30, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted- Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted- Average Amortization Period (in years)
Customer relationships	$	120,000	$	(59,298	)	$	60,702		6.0	$	120,000	$	(85,533	)	$	34,467		6.0
Licenses		3,368		(1,382	)		1,986		5.6		3,368		(2,544	)		824		5.6
Non-compete agreements		660		(660	)		—		1.0
Total intangible assets subject to amortization	$	124,028	$	(61,340	)	$	62,688			$	123,368	$	(88,077	)	$	35,291
License (Indefinite-lived)	$	4,427

	December 31, 2016									December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted- Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted- Average Amortization Period (in years)
Customer relationships	$	120,000	$	(36,593	)	$	83,407		6.0	$	120,000	$	(66,866	)	$	53,134		6.0
Licenses		3,368		(807	)		2,561		5.6		3,368		(1,601	)		1,767		5.6
Non-compete agreements		660		(495	)		165		1.0		660		(660	)		—		1.0
Total intangible assets subject to amortization	$	124,028	$	(37,895	)	$	86,133			$	124,028	$	(69,127	)	$	54,901
License (Indefinite-lived)	$	4,427

Year ended December 31,	Amortization Expense
2018	$	26,163
2019		18,489
2020		9,906
2021		75
2022		75

										Nine Months Ended September 30, 2018
	Accumulated Other Comprehensive Income (Loss)			Change Related to Cash Flow Hedges			Change Related to Shipboard Retirement Plan			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	$	(314,473	)	$	(307,618	)	$	(6,855	)	$	26,966		$	33,861		$	(6,895	)
Current period other comprehensive income before reclassifications		221,512			221,512			—			48,047			48,047			—
Amounts reclassified into earnings		31,906			31,593	(1)		313	(2)		(18,895	)		(19,214	)(1)		319	(2)
Accumulated other comprehensive income (loss) at end of period	$	(61,055	)	$	(54,513	)(3)	$	(6,542	)	$	56,118		$	62,694	(3)	$	(6,576	)

	Nine Months Ended September 30, 2017
	Accumulated Other Comprehensive Income (Loss)			Change Related to Cash Flow Hedges			Change Related to Shipboard Retirement Plan
Accumulated other comprehensive loss at beginning of period	$	(314,473	)	$	(307,618	)	$	(6,855	)
Current period other comprehensive income before reclassifications		221,512			221,512			—
Amounts reclassified into earnings		31,906			31,593	(1)		313	(4)
Accumulated other comprehensive loss at end of period	$	(61,055	)	$	(54,513	)	$	(6,542	)

Shareholder	Number of Shares		Percentage Ownership
Apollo Holders		15,728,782		7.1	%
Genting HK		3,148,307		1.4	%

~~Level 1~~	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.~~

		Assets				Liabilities
Derivative Contracts Designated as Hedging Instruments	Balance Sheet Location	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Fuel contracts
	Prepaid expenses and other assets	$	52,471	$	19,220	$	—	$	2,406
	Other long-term assets		32,357		19,854		281		3,469
	Accrued expenses and other liabilities		—		—		—		3,348
	Other long-term liabilities		—		576		—		2,148
Foreign currency contracts
	Prepaid expenses and other assets		2,229		52,300		—		730
	Other long-term assets		33,337		85,081		2,976		—
	Accrued expenses and other liabilities		—		—		118		—
	Other long-term liabilities		4,747		—		9,312		—
Interest rate contracts
	Prepaid expenses and other assets		1,984		—		—		—
	Other long-term assets		1,177		—		—		—
	Accrued expenses and other liabilities		—		—		—		1,020
Total derivative contracts designated as hedging instruments		$	128,302	$	177,031	$	12,687	$	13,121

		Asset				Liability
	Balance Sheet location	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Fuel swaps designated as hedging instruments
	Prepaid expenses and other assets	$	5,796	$	20,288	$	—	$	—
	Other long-term assets		4,636		—		1,903		—
	Accrued expenses and other liabilities		4,237		—		26,069		44,271
	Other long-term liabilities		7,724		13,237		17,578		38,608
Foreign currency forward contracts designated as hedging instruments
	Prepaid expenses and other assets		41,983		—		1,354		—
	Other long-term assets		65,780		14		—		—
	Accrued expenses and other liabilities		—		—		—		61,788
	Other long-term liabilities		—		—		—		88,920
Interest rate swaps designated as hedging instruments
	Accrued expenses and other liabilities		—		—		1,876		3,331
	Other long-term liabilities		—		—		—		1,151

September 30, 2017	Gross Amounts		Gross Amounts Offset			Total Net Amounts		Gross Amounts Not Offset			Net Amounts
September 30, 2018													Gross Amounts		Gross Amounts Offset			Total Net Amounts		Gross Amounts Not Offset			Net Amounts
Assets	$	118,195	$	(3,257	)	$	114,938	$	(100,582	)	$	14,356	$	123,555	$	(3,257	)	$	120,298	$	(34,549	)	$	85,749
Liabilities		45,523		(11,961	)		33,562		(1,876	)		31,686		9,430		(4,747	)		4,683		(3,716	)		967

Derivatives	Amount of Gain (Loss) Recognized in Other Comprehensive Income						Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
	Three Months Ended September 30, 2018			Three Months Ended September 30, 2017				Three Months Ended September 30, 2018			Three Months Ended September 30, 2017
Fuel contracts	$	24,439		$	30,452		Fuel	$	11,595		$	(9,796	)
Foreign currency contracts		(10,062	)		66,849		Depreciation and amortization		(703	)		(1,157	)
Interest rate contracts		988			(25	)	Interest expense, net		(186	)		(691	)
Total gain (loss) recognized in other comprehensive income	$	15,365		$	97,276			$	10,706		$	(11,644	)

	Three Months Ended September 30, 2018								Three Months Ended September 30, 2017
	Fuel		Depreciation and Amortization			Interest Expense, net			Fuel			Depreciation and Amortization			Interest Expense, net
Total amounts of income and expense line items presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded	$	99,643	$	143,700		$	69,540		$	91,231		$	134,532		$	66,339

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income
Fuel contracts		11,595		—			—			(9,796	)		—			—
Foreign currency contracts		—		(703	)		—			—			(1,157	)		—
Interest rate contracts		—		—			(186	)		—			—			(691	)

Derivatives	Amount of Gain (Loss) Recognized in Other Comprehensive Income						Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
	Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017
Fuel contracts	$	88,935		$	(635	)	Fuel	$	23,024		$	(26,383	)
Foreign currency contracts		(43,951	)		221,913		Depreciation and amortization		(2,761	)		(2,909	)
Interest rate contracts		3,063			234		Interest expense, net		(1,049	)		(2,301	)
Total gain (loss) recognized in other comprehensive income	$	48,047		$	221,512			$	19,214		$	(31,593	)

	Number of Share Option Awards								Weighted-Average Exercise Price						Weighted- Average Contractual Term		Aggregate Intrinsic Value		Number of Share Option Awards								Weighted-Average Exercise Price						Weighted- Average Contractual Term		Aggregate Intrinsic Value
	Time- Based Awards			Performance- Based Awards			Market- Based Awards		Time- Based Awards		Performance- Based Awards		Market- Based Awards		(years)		(in thousands)		Time- Based Awards			Performance- Based Awards			Market- Based Awards		Time- Based Awards		Performance- Based Awards		Market- Based Awards		(in years)		(in thousands)
Outstanding as of January 1, 2017		7,775,058			432,978			208,333	$	48.04	$	23.86	$	59.43		7.81	$	35,429
Outstanding as of January 1, 2018																				6,580,898			373,969			208,333	$	49.18	$	31.39	$	59.43		6.99	$	50,021
Granted		—			156,249			—		—		59.43		—		—		—		—			208,335			—	$	—	$	59.43	$	—		—	$	—
Exercised		(704,339	)		(83,288	)		—		33.92		19.00		—		—		—		(625,611	)		(109,285	)		—	$	34.44	$	19.00	$	—		—	$	—
Forfeited and cancelled		(385,070	)		(93,749	)		—		54.42		59.43		—		—		—		(192,333	)		(52,084	)		—	$	54.70	$	59.43	$	—		—	$	—
Outstanding as of September 30, 2017		6,685,649			412,190			208,333	$	49.16	$	30.24	$	59.43		7.22	$	54,689
Outstanding as of September 30, 2018																				5,762,954			420,935			208,333	$	50.60	$	45.01	$	59.43		6.46	$	47,269

	Number of Time-Based Awards			Weighted- Average Grant Date Fair Value
Non-vested as of January 1, 2017		16,872		$	7.63
Granted		—			—
Vested		(15,702	)		4.94
Forfeited or expired		—			—
Non-vested and expected to vest as of September 30, 2017		1,170		$	43.70

	Number of Time-Based Awards			Weighted- Average Grant Date Fair Value
Non-vested as of January 1, 2018		858		$	58.33
Vested		(429	)	$	58.25
Non-vested as of September 30, 2018		429		$	58.41

	Number of Time-Based Awards			Weighted- Average Grant Date Fair Value		Number of Performance- Based Awards			Weighted- Average Grant Date Fair Value		Number of Market- Based Awards		Weighted- Average Grant Date Fair Value
Non-vested as of January 1, 2018		2,555,477		$	50.86		—		$	—		50,000	$	59.43
Granted		1,613,077		$	56.73		843,998		$	56.58		—	$	—
Vested		(1,032,760	)	$	50.66		—		$	—		—	$	—
Forfeited or expired		(142,227	)	$	53.31		(18,384	)	$	56.43		—	$	—
Non-vested as of September 30, 2018		2,993,567		$	53.98		825,614		$	56.58		50,000	$	59.43

	Number of Time-Based Awards			Weighted- Average Grant Date Fair Value		Number of Performance- Based Awards			Weighted- Average Grant Date Fair Value		Number of Market- Based Awards		Weighted- Average Grant Date Fair Value
Non-vested as of January 1, 2017		1,305,335		$	50.38		—		$	—		50,000	$	59.43
Granted		1,803,327			51.13		37,500			49.76		—		—
Vested		(447,503	)		50.55		(15,000	)		49.76		—		—
Forfeited or expired		(70,179	)		50.71		(22,500	)		49.76		—		—
Non-vested and expected to vest as of September 30, 2017		2,590,980			50.86		—			—		50,000		59.43

	•	~~our expansion into and investments in new markets;~~
	•·	breaches in data security or other disturbances to our information technology and other networks;

	•	~~the spread of epidemics and viral outbreaks;~~
	•	~~adverse incidents involving cruise ships;~~
	•·	changes in fuel prices and/or other cruise operating costs;

	·	the unavailability of ~~our tradenames or goodwill;~~attractive port destinations;
	•	~~our hedging strategies;~~
	•·	~~our inability to obtain adequate insurance coverage;~~evolving requirements and regulations regarding data privacy and protection and any actual or perceived compliance failures by us;

	•·	our ~~substantial~~ indebtedness ~~including the ability to raise additional capital to fund our operations,~~ and ~~to generate the necessary amount of cash to service our existing debt;~~
	•	restrictions in the agreements governing our indebtedness that limit our flexibility in operating our business;

	•	~~fluctuations in foreign currency exchange rates;~~
	•	~~overcapacity in key markets or globally;~~
	•·	our inability to recruit or retain qualified personnel or the loss of key personnel;

	•	~~delays in our shipbuilding program and ship repairs, maintenance and refurbishments;~~
	•·	future increases in the price of, or major changes or reduction in, commercial airline services;

	•	~~our ability to keep pace with developments in technology;~~
	•	~~amendments to our collective bargaining agreements for crew members and other employee relation issues;~~
	•	~~the continued availability of attractive port destinations;~~
	•	~~pending or threatened litigation, investigations and enforcement actions;~~
	•·	changes involving the tax and environmental regulatory regimes in which we operate; and

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Passengers carried		823,413			741,216			2,128,673			1,868,512
Passenger Cruise Days		5,493,932			5,071,115			15,177,982			13,819,421
Capacity Days		4,941,643			4,590,789			13,958,331			12,811,155
Occupancy Percentage		111.2	%		110.5	%		108.7	%		107.9	%

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt (1)	$	6,734,832		605,827		1,240,277		3,229,750		1,658,978	$	6,679,612	$	679,908	$	2,205,859	$	1,882,111	$	1,911,734
Operating leases (2)		140,525		15,927		30,532		28,044		66,022		131,737		17,456		31,180		27,562		55,539
Ship construction contracts (3)		6,193,555		1,111,116		1,358,988		1,115,161		2,608,290		5,184,623		107,904		1,446,033		1,971,744		1,658,942
Port facilities (4)		144,822		32,647		43,656		27,424		41,095		1,002,302		61,757		116,169		116,432		707,944
Interest (5)		1,022,705		226,295		400,423		231,596		164,391		1,016,039		219,023		399,608		189,715		207,693
Other ~~(6)~~(7)		166,255		52,697		69,510		26,168		17,880		1,428,885		250,748		431,078		357,587		389,472
Total(8)	$	14,402,694	$	2,044,509	$	3,143,386	$	4,658,143	$	4,556,656	$	15,443,198	$	1,336,796	$	4,629,927	$	4,545,151	$	4,931,324