UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

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

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

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

For the transition period from to

Commission File Number: 333-128780

NCL CORPORATION LTD.

(Exact name of registrant as specified in its charter)

Bermuda		20-0470163
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7665 Corporate Center Drive, Miami, Florida 33126		33126
(Address of principal executive offices)		(zip code)

(305) 436-4000

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

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

(Note: The registrant is a voluntary filer of reports required to be filed under Section 13 or 15 (d) of the Securities Exchange Act of 1934).

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

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

Large accelerated filer ◻	Accelerated filer ◻
Non-accelerated filer ⌧	Smaller reporting company ☐
Emerging growth company ☐

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

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

There were 31,164,004 ordinary shares outstanding as of ~~October~~July 31, ~~2020.~~2021.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NCL Corporation Ltd.

Consolidated Statements of Operations

(Unaudited)

(in thousands)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Revenue
Passenger ticket	$	4,667	$	1,373,779	$	859,293	$	3,526,456	$	1,584	$	13,835	$	1,750	$	854,626
Onboard and other		1,851		540,072		411,036		1,455,302		2,784		3,094		5,718		409,185
Total revenue		6,518		1,913,851		1,270,329		4,981,758		4,368		16,929		7,468		1,263,811
Cruise operating expense
Commissions, transportation and other		4,038		330,893		371,007		857,848		6,564		34,601		15,597		366,969
Onboard and other		4,728		122,971		82,889		309,447		1,276		3,188		2,535		78,161
Payroll and related		65,571		235,833		441,462		688,325		86,647		128,744		168,785		375,891
Fuel		48,224		98,943		222,240		297,727		54,090		48,992		96,693		174,016
Food		3,426		56,913		59,639		166,305		4,334		6,997		10,642		56,213
Other		64,170		145,211		308,832		456,187		96,816		79,130		156,330		244,662
Total cruise operating expense		190,157		990,764		1,486,069		2,775,839		249,727		301,652		450,582		1,295,912
Other operating expense
Marketing, general and administrative		156,351		254,535		556,820		742,857		184,901		130,562		387,967		400,469
Depreciation and amortization		177,488		156,215		554,937		482,227		174,262		179,252		344,578		377,449
Impairment loss		—		—		1,607,797		—		—		—		—		1,607,797
Total other operating expense		333,839		410,750		2,719,554		1,225,084		359,163		309,814		732,545		2,385,715
Operating income (loss)		(517,478)		512,337		(2,935,294)		980,835
Operating loss										(604,522)		(594,537)		(1,175,659)		(2,417,816)
Non-operating income (expense)
Interest expense, net		(154,501)		(60,188)		(343,993)		(199,660)		(179,448)		(120,585)		(639,780)		(189,492)
Other income (expense), net		(89,005)		10,251		(325,412)		13,433		(82,627)		(242,230)		(371,892)		(236,407)
Total non-operating income (expense)		(243,506)		(49,937)		(669,405)		(186,227)		(262,075)		(362,815)		(1,011,672)		(425,899)
Net income (loss) before income taxes		(760,984)		462,400		(3,604,699)		794,608
Net loss before income taxes										(866,597)		(957,352)		(2,187,331)		(2,843,715)
Income tax benefit (expense)		2,832		(7,091)		13,216		23,381		(927)		6,287		(2,655)		10,384
Net income (loss)	$	(758,152)	$	455,309	$	(3,591,483)	$	817,989
Net loss									$	(867,524)	$	(951,065)	$	(2,189,986)	$	(2,833,331)

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

Table of Contents

NCL Corporation Ltd.

Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss

(Unaudited)

(in thousands)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net income (loss)	$	(758,152)	$	455,309	$	(3,591,483)	$	817,989
Net loss									$	(867,524)	$	(951,065)	$	(2,189,986)	$	(2,833,331)
Other comprehensive income (loss):
Shipboard Retirement Plan		101		95		305		284		99		102		197		204
Cash flow hedges:
Net unrealized gain (loss)		87,710		(209,511)		(163,672)		(211,548)		44,674		54,478		(28,363)		(251,382)
Amount realized and reclassified into earnings		36,072		(448)		86,853		(16,722)		13,542		28,782		35,380		50,781
Total other comprehensive income (loss)		123,883		(209,864)		(76,514)		(227,986)		58,315		83,362		7,214		(200,397)
Total comprehensive income (loss)	$	(634,269)	$	245,445	$	(3,667,997)	$	590,003
Total comprehensive loss									$	(809,209)	$	(867,703)	$	(2,182,772)	$	(3,033,728)

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

Table of Contents

NCL Corporation Ltd.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
Assets
Current assets:
Cash and cash equivalents	$	2,354,973	$	231,239	$	2,749,233	$	3,299,340
Accounts receivable, net		78,496		75,109		422,598		20,578
Inventories		81,259		95,427		92,041		82,381
Prepaid expenses and other assets		130,907		306,616		194,124		147,556
Total current assets		2,645,635		708,391		3,457,996		3,549,855
Property and equipment, net		13,453,433		13,135,337		13,431,884		13,411,226
Goodwill		98,134		1,388,931		98,134		98,134
Trade names		500,525		817,525		500,525		500,525
Other long-term assets		697,445		612,864		1,030,586		831,888
Total assets	$	17,395,172	$	16,663,048	$	18,519,125	$	18,391,628
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt	$	472,359	$	746,358	$	361,233	$	124,885
Accounts payable		116,464		100,777		110,628		83,136
Accrued expenses and other liabilities		629,357		782,665		631,634		596,717
Due to NCLH		36,006		35,044		39,114		37,790
Advance ticket sales		1,115,632		1,954,980		1,076,826		1,109,826
Total current liabilities		2,369,818		3,619,824		2,219,435		1,952,354
Long-term debt		8,932,660		6,055,335		10,645,941		10,128,754
Exchangeable notes		1,977,697		—		2,374,684		2,691,720
Other long-term liabilities		511,801		526,089		699,544		447,492
Total liabilities		13,791,976		10,201,248		15,939,604		15,220,320
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 9)
Shareholders’ equity:
Preference shares (Series A-1: $1,000 par value; 2,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2020; Series A-2: $1,000 par value; 2,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2020; and Series A-3: $1,000 par value; 1,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2020)		—		—
Ordinary shares ($0.0012 par value; 40,000,000 shares authorized; 31,164,004 shares issued and outstanding at September 30, 2020 and December 31, 2019)		37		37
Preference shares (Series A-1: $1,000 par value; 2,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020; Series A-2: $1,000 par value; 2,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020; and Series A-3: $1,000 par value; 1,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020)						—		—
Ordinary shares ($0.0012 par value; 40,000,000 shares authorized; 31,164,004 shares issued and outstanding at June 30, 2021 and December 31, 2020)						37		37
Additional paid-in capital		4,868,800		4,061,330		7,312,710		5,721,725
Accumulated other comprehensive income (loss)		(373,717)		(297,203)		(234,616)		(241,830)
Retained earnings (deficit)		(891,924)		2,697,636		(4,498,610)		(2,308,624)
Total shareholders’ equity		3,603,196		6,461,800		2,579,521		3,171,308
Total liabilities and shareholders’ equity	$	17,395,172	$	16,663,048	$	18,519,125	$	18,391,628

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

Table of Contents

NCL Corporation Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2020		2019		2021		2020
Cash flows from operating activities
Net income (loss)	$	(3,591,483)	$	817,989
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net loss					$	(2,189,986)	$	(2,833,331)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		598,380		482,497		415,000		397,608
Impairment loss		1,607,797		—		—		1,607,797
Deferred income taxes, net		(17,550)		(25,883)		12		(13,099)
Loss on derivatives		293,045		—		402,102		223,919
Loss on extinguishment of debt		10,480		3,988		237,065		5,014
Provision for bad debts and inventory obsolescence		16,293		2,852		7,211		10,359
Gain on involuntary conversion of assets		(1,340)		(2,800)		(1,817)		(1,403)
Share-based compensation expense		81,009		82,070		49,052		55,147
Net foreign currency adjustments		3,746		(4,326)		(3,767)		160
Changes in operating assets and liabilities:
Accounts receivable, net		(12,103)		(12,741)		(408,120)		(2,108)
Inventories		12,757		(4,681)		(9,956)		11,996
Prepaid expenses and other assets		85,424		(31,492)		(242,642)		(111,454)
Accounts payable		11,536		(86,525)		26,205		369,519
Accrued expenses and other liabilities		(179,764)		(24,300)		45,783		(202,647)
Advance ticket sales		(834,560)		262,938		191,609		(844,244)
Net cash provided by (used in) operating activities		(1,916,333)		1,459,586
Net cash used in operating activities						(1,482,249)		(1,326,767)
Cash flows from investing activities
Additions to property and equipment, net		(873,142)		(615,985)		(309,481)		(725,477)
Cash received on settlement of derivatives		—		289
Cash paid on settlement of derivatives		(31,520)		(556)		(8,559)		(28,606)
Other		3,047		5,039		2,825		2,519
Net cash used in investing activities		(901,615)		(611,213)		(315,215)		(751,564)
Cash flows from financing activities
Repayments of long-term debt		(888,800)		(2,882,354)		(879,679)		(207,863)
Proceeds from long-term debt		5,225,090		2,652,000		1,223,110		3,962,655
Dividends		—		(341,000)
Due to NCLH, net		962		(12,025)		1,323		185
Contribution from NCLH		741,795		3,500		1,558,957		464,499
Net share settlement of restricted share units		(15,334)		(20,935)		(16,658)		(15,318)
Early redemption premium		(1,376)		(117)		(611,164)		—
Deferred financing fees		(117,388)		(9,359)
Net cash provided by (used in) financing activities		4,944,949		(610,290)
Deferred financing fees and other						(28,532)		(94,559)
Net cash provided by financing activities						1,247,357		4,109,599
Effect of exchange rates on cash and cash equivalents		(3,267)		—		—		(3,933)
Net increase in cash and cash equivalents		2,123,734		238,083
Net increase (decrease) in cash and cash equivalents						(550,107)		2,027,335
Cash and cash equivalents at beginning of period		231,239		162,419		3,299,340		231,239
Cash and cash equivalents at end of period	$	2,354,973	$	400,502	$	2,749,233	$	2,258,574

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

Table of Contents

NCL Corporation Ltd.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(in thousands)


	Three Months Ended September 30, 2020										Three Months Ended June 30, 2021
					Accumulated										Accumulated
			Additional		Other		Retained		Total				Additional		Other		Retained		Total
	Ordinary		Paid-in		Comprehensive		Earnings		Shareholders’		Ordinary		Paid-in		Comprehensive		Earnings		Shareholders’
	Shares		Capital		Income (Loss)		(Deficit)		Equity		Shares		Capital		Income (Loss)		(Deficit)		Equity
Balance, June 30, 2020	$	37	$	4,565,658	$	(497,600)	$	(133,772)	$	3,934,323
Balance, March 31, 2021											$	37	$	7,291,240	$	(292,931)	$	(3,631,086)	$	3,367,260
Share-based compensation		—		25,862		—		—		25,862		—		22,451		—		—		22,451
Net share settlement of restricted share units		—		(16)		—		—		(16)		—		(615)		—		—		(615)
Contribution from NCLH		—		277,296		—		—		277,296
Other												—		(366)		—		—		(366)
Other comprehensive income, net		—		—		123,883		—		123,883		—		—		58,315		—		58,315
Net loss		—		—		—		(758,152)		(758,152)		—		—		—		(867,524)		(867,524)
Balance, September 30, 2020	$	37	$	4,868,800	$	(373,717)	$	(891,924)	$	3,603,196
Balance, June 30, 2021											$	37	$	7,312,710	$	(234,616)	$	(4,498,610)	$	2,579,521

	Nine Months Ended September 30, 2020										Six Months Ended June 30, 2021
					Accumulated										Accumulated
			Additional		Other		Retained		Total				Additional		Other		Retained		Total
	Ordinary		Paid-in		Comprehensive		Earnings		Shareholders’		Ordinary		Paid-in		Comprehensive		Earnings		Shareholders’
	Shares		Capital		Income (Loss)		(Deficit)		Equity		Shares		Capital		Income (Loss)		(Deficit)		Equity
Balance, December 31, 2019	$	37	$	4,061,330	$	(297,203)	$	2,697,636	$	6,461,800
Balance, December 31, 2020											$	37	$	5,721,725	$	(241,830)	$	(2,308,624)	$	3,171,308
Share-based compensation		—		81,009		—		—		81,009		—		49,052		—		—		49,052
Net share settlement of restricted share units		—		(15,334)		—		—		(15,334)		—		(16,658)		—		—		(16,658)
Cumulative change in accounting policy		—		—		—		1,923		1,923
Contribution from NCLH		—		741,795		—		—		741,795		—		1,558,957		—		—		1,558,957
Other comprehensive loss, net		—		—		(76,514)		—		(76,514)
Other												—		(366)		—		—		(366)
Other comprehensive income, net												—		—		7,214		—		7,214
Net loss		—		—		—		(3,591,483)		(3,591,483)		—		—		—		(2,189,986)		(2,189,986)
Balance, September 30, 2020	$	37	$	4,868,800	$	(373,717)	$	(891,924)	$	3,603,196
Balance, June 30, 2021											$	37	$	7,312,710	$	(234,616)	$	(4,498,610)	$	2,579,521

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

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NCL Corporation Ltd.

Consolidated Statements of Changes in Shareholders’ Equity - Continued

(Unaudited)

(in thousands)


	Three Months Ended September 30, 2019										Three Months Ended June 30, 2020
					Accumulated										Accumulated
			Additional		Other		Retained		Total				Additional		Other		Retained		Total
	Ordinary		Paid-in		Comprehensive		Earnings		Shareholders’		Ordinary		Paid-in		Comprehensive		Earnings		Shareholders’
	Shares		Capital		Income (Loss)		(Deficit)		Equity		Shares		Capital		Income (Loss)		(Deficit)		Equity
Balance, June 30, 2019	$	37	$	4,023,034	$	(181,482)	$	2,266,110	$	6,107,699
Balance, March 31, 2020											$	37	$	4,101,613	$	(580,962)	$	817,293	$	4,337,981
Share-based compensation		—		25,420		—		—		25,420		—		22,389		—		—		22,389
Net share settlement of restricted share units		—		(105)		—		—		(105)		—		(343)		—		—		(343)
Other comprehensive loss, net		—		—		(209,864)		—		(209,864)
Dividends		—		—		—		(147,000)		(147,000)
Net income		—		—		—		455,309		455,309
Balance, September 30, 2019	$	37	$	4,048,349	$	(391,346)	$	2,574,419	$	6,231,459
Contribution from NCLH												—		441,999		—		—		441,999
Other comprehensive income, net												—		—		83,362		—		83,362
Net loss												—		—		—		(951,065)		(951,065)
Balance, June 30, 2020											$	37	$	4,565,658	$	(497,600)	$	(133,772)	$	3,934,323

	Nine Months Ended September 30, 2019										Six Months Ended June 30, 2020
					Accumulated										Accumulated
			Additional		Other		Retained		Total				Additional		Other		Retained		Total
	Ordinary		Paid-in		Comprehensive		Earnings		Shareholders’		Ordinary		Paid-in		Comprehensive		Earnings		Shareholders’
	Shares		Capital		Income (Loss)		(Deficit)		Equity		Shares		Capital		Income (Loss)		(Deficit)		Equity
Balance, December 31, 2018	$	37	$	3,983,714	$	(163,360)	$	2,097,430	$	5,917,821
Balance, December 31, 2019											$	37	$	4,061,330	$	(297,203)	$	2,697,636	$	6,461,800
Share-based compensation		—		82,070		—		—		82,070		—		55,147		—		—		55,147
Net share settlement of restricted share units		—		(20,935)		—		—		(20,935)		—		(15,318)		—		—		(15,318)
Contribution from NCLH		—		3,500		—		—		3,500		—		464,499		—		—		464,499
Cumulative change in accounting policy												—		—		—		1,923		1,923
Other comprehensive loss, net		—		—		(227,986)		—		(227,986)		—		—		(200,397)		—		(200,397)
Dividends		—		—		—		(341,000)		(341,000)
Net income		—		—		—		817,989		817,989
Balance, September 30, 2019	$	37	$	4,048,349	$	(391,346)	$	2,574,419	$	6,231,459
Net loss												—		—		—		(2,833,331)		(2,833,331)
Balance, June 30, 2020											$	37	$	4,565,658	$	(497,600)	$	(133,772)	$	3,934,323

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

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NCL Corporation Ltd.

Notes to Consolidated Financial Statements

(Unaudited)

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

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

1. Description of Business and Organization

We are a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. As of ~~September~~June 30, ~~2020,~~2021, we had 28 ships with approximately 59,150 Berths and had orders for 9 additional ships to be delivered through 2027. Due to the novel coronavirus (“COVID-19”), we ~~have~~ temporarily suspended all global cruise voyages from March 2020 through ~~December 31, 2020.~~June 2021 and began resuming cruise voyages in July 2021 on a limited basis. We refer you to Note 2 – “Summary of Significant Accounting Policies” for further information.

We have 1 Explorer Class Ship on order for delivery in 2023. We have 2 Allura Class Ships on order for delivery in 2023 and 2025. Project Leonardo will introduce an additional 6 ships with expected delivery dates from 2022 through 2027. These additions to our fleet will increase our total Berths to approximately 83,000, which includes additional Berths we plan to add to our Project Leonardo ships, subject to certain conditions. The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged.

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2. Summary of Significant Accounting Policies

Liquidity and Management’s Plan

Due to the ~~continued spread~~impact of COVID-19, ~~growing~~ongoing travel restrictions and limited access to ports around the world, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across its ~~three brands, which has subsequently been extended through December 31, 2020. Additionally, Regent has suspended its~~3 brands. As of June 30, 2021, World Cruise along with voyages departing through April 2021 on one ship and voyages in Australia through February 2021, Oceania Cruises has cancelled its World Cruise through May 18, 2021 and voyages in Australia through February 2021, and Norwegian has cancelled all voyages aboard three of its ships through March 30, 2021. On March 14, 2020, concurrent with our and the broader cruise industry’s original suspension, the U.S. Centers for Disease Control and Prevention (“CDC”) issued a No Sail Order through April 13, 2020, which was subsequently extended through October 31, 2020. On October 30, 2020, the CDC issued a Framework for Conditional Sailing Order (the “Conditional Order”) that introduces a phased approach for the resumption of passenger cruises. These phases include:

●

~~the establishment of laboratory testing of crew onboard cruise ships in U.S. waters;~~

●

~~simulated voyages designed to test a cruise ship operator’s ability to mitigate COVID-19 on cruise ships;~~

●

~~a certification process; and~~

●

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

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

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

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~~We continue to expect a gradual phased relaunch~~none of our ships ~~after the voyage suspension period,~~were operating with guests on board; however, all of our ~~ships initially operating at reduced occupancy levels. The timing for bringing~~brands have announced resumption of cruise voyages by September 30, 2021 as part of our ~~ships back~~phased return to service and percentage of fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, including further resurgences of COVID-19, our ability to comply with the Conditional Order, port availability, travel restrictions and advisories and our ability to re-staff ourtwo ships ~~and implement new health and safety protocols.~~have currently commenced voyages. Significant events affecting travel, including COVID-19, typically have an impact on demand for cruise vacations, with the full extent of the impact generally determined by the length of time the event influences travel decisions. We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of the pandemic. ~~Due~~

In January 2021, we amended our Senior Secured Credit Facility to further defer certain amortization payments due prior to June 30, 2022 and to waive certain financial and other covenants through December 31, 2022. In February 2021, we amended certain of our export-credit backed facilities to further defer amortization payments through March 31, 2022, and we amended all of our export-credit backed facilities to suspend certain financial covenants through December 31, 2022. In connection with such amendments of our Senior Secured Credit Facility and our export-credit backed facilities, our minimum liquidity requirement was increased to $200 million and such requirement applies through December 31, 2022. In March 2021, the ~~unknown~~Company received additional financing through various debt financings and an equity offering, collectively totaling approximately $2.7 billion in gross proceeds. From the proceeds, approximately $1.5 billion was used to extinguish debt. Refer to Note 6 – “Long-Term Debt” for further details of the above transactions.

In the second quarter of 2021, we announced a phased relaunch of certain cruise voyages beginning in July 2021 with our ships initially operating at reduced occupancy levels. The Company has announced its phased relaunch plans for all 28 ships across its three brands which began with Norwegian Jade on July 25, 2021 and continues through April 1, 2022. The first cruise to commence in the U.S. was on August 7, 2021 with Norwegian Encore sailing to Alaska from Seattle. The Company expects to have approximately 40% of capacity operating by September 30, 2021 and approximately 75% by December 31, 2021 with the full fleet expected to be back in operation by April 1, 2022. The timing for bringing our ships back to service and the percentage of our fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, ~~travel restrictions~~further resurgences and ~~advisories, uncertainties around~~new more contagious and/or vaccine-resistant variants of COVID-19, the availability, distribution, rate of public acceptance and efficacy of vaccines and therapeutics for COVID-19, our ability to comply with governmental regulations, port availability, travel restrictions, bans and advisories, and our ability to re-staff our ships and implement new health and safety protocols.

The estimation of our future cash flow projections includes numerous assumptions that are subject to various risks and uncertainties. Upon the ~~Conditional Order,~~relaunch of cruise voyages, our principal assumptions for future cash flow projections include:

●

Expected gradual phased relaunch at reduced occupancy levels, increasing over time until we reach historical occupancy levels;

●

Forecasted cash collections primarily upon completion of future voyages and the payment of cash refunds for any further cancellations, in accordance with the terms of our credit card processing agreements (see Note 9 - “Commitments and Contingencies”); and

●

Expected incremental expenses for resumption of cruise voyages, including the maintenance of and compliance with additional health and safety protocols.

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We cannot make assurances that our assumptions used to estimate our liquidity requirements will not change due to the ~~potential unavailability~~unique and unpredictable nature of ~~ports and/or destinations, unknown cancellations~~the pandemic, including its magnitude and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, we cannot predict when our full fleet will be back in service at historical occupancy levels and, accordingly,duration. Accordingly, the full effect of the COVID-19 pandemic on our financial performance and financial condition cannot be quantified at this ~~time; however, we~~time. We have made reasonable estimates and judgments of the impact of COVID-19 within our financial statements and there may be material changes to those estimates in future periods. We will report a net loss for the three months ending September 30, 2021 and expect to report a net loss until we are able to resume regular voyages, including for the year ending December 31, ~~2020.~~

~~Since March 2020, we have taken several actions to bolster our financial condition while our global cruise voyages are suspended. In March 2020, NCLC borrowed the full amount of~~ ~~$1.55 billion under its $875 million Revolving Loan Facility and its then existing $675 million Epic Credit Facility, dated as of March 5, 2020.~~2021. We have taken ~~additional measures~~actions to improve our liquidity, ~~by refinancing existing~~including completing various capital market transactions and making capital expenditure and operating expense reductions, and we expect to continue to pursue other opportunities to improve our liquidity and to refinance our debt ~~amortization,~~to reduce interest expense and extend maturities.

Based on these actions and assumptions regarding the impact of COVID-19, and considering our available liquidity including under our agreements with export credit agencies and related governments, and by extending the maturities and refinancing amortization under other agreements, which has resulted in approximately $1.6 billion of payment deferrals. See Note 8 – “Long-Term Debt” for further information. Through September 30, 2020, NCLH and NCLC received additional financing through various debt financings and equity offerings in May and July 2020 totaling $3.9 billion in gross proceeds. See Note 8 – “Long-Term Debt” for further information on the debt financings. The equity offerings, which were recognized as capital contributions to NCLC, resulted in 60,984,848 NCLH shares being issued in exchange for gross proceeds of $747.5 million. The Company has also undertaken several proactive cost reductioncash and cash ~~conservation measures to mitigate the financial and operational impacts~~equivalents of ~~COVID-19, through the reduction~~$2.7 billion as of ~~capital expenditures and operating expenses, including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension, resulting in lower crew payroll expense.~~

~~In accordance with Accounting Standards Update (“ASU”) No. 2014-15,~~ ~~Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern~~~~, the Company has evaluated whether there are conditions and events, considered in the aggregate,~~June 30, 2021, we have concluded that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The quantitative liquidity analysis reflects management’s principal assumptions related to (i) the Company’s ability to operate and redeployment of the fleet not currently in service, (ii) forecasted cash collections for future voyages and (iii) forecasted liquidity requirements for ongoing operations. Based on the actions the Company has taken as described above and our resulting current resources, the Company has alleviated the substantial doubt previously disclosed and haswe have sufficient liquidity to satisfy our obligations ~~over~~for at least the next twelve months ~~and maintain minimum levels of liquidity as required by certain of our debt agreements.~~.

Basis of Presentation

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

Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months; however, our cruise voyages were completely suspended ~~during the summer months of~~from March 2020 until July 2021 due to the COVID-19 pandemic. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, ~~2019,~~2020, which are included in our most recent Annual Report on Form 10-K filed with the SEC ~~as updated by our Current Report~~ on ~~Form 8-K filed on July 8, 2020.~~

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~~Reclassifications~~

~~Certain amounts in prior periods have been reclassified to conform to the current period presentation.~~February 26, 2021.

Foreign Currency

The majority of our transactions are settled in U.S. dollars. We remeasure assets and liabilities denominated in foreign currencies at exchange rates in effect at the balance sheet date. Gains or losses resulting from transactions denominated in other currencies are recognized in our consolidated statements of operations within other income (expense), net. We recognized a ~~loss~~gain of ~~$12.3~~$0.2 million and a ~~gain~~loss of ~~$9.9~~$10.2 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~a loss~~gains of ~~$2.6~~$5.0 million and ~~a gain of $5.6~~$9.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, related to transactions denominated in other currencies.

Depreciation and Amortization Expense

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

Accounts Receivable, Net

Accounts receivable, net includes $400.7 million due from credit card processors as of June 30, 2021, which is expected to be collected within the next 12 months. Prior to the resumption of cruise operations, these amounts were classified in other long-term assets as a result of the uncertainty surrounding the timing of their collection.

Recently Issued Accounting Guidance

In ~~August~~March 2020, the Financial Accounting Standards Board (“FASB”) issued ~~ASU No. 2020-06,~~ ~~Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):~~ Accounting ~~for Convertible Instruments and Contracts in an Entity’s Own Equity~~Standards Update (“~~ASU 2020-06”~~ASU”), which reduces the number of accounting models for convertible debt instruments and enhances transparency in disclosures. Adoption of the provisions of ASU 2020-06 are required for fiscal years beginning after December 15, 2021 and early adoption is permitted. Although the model we use is not being eliminated, we will adopt this guidance early on January 1, 2021 on a modified retrospective basis. As a result of the adoption, our results of operations and financial position will be unchanged; however, additional disclosures will be added as necessary.

~~In March 2020, the FASB issued ASU~~ No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provided guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another

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reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. As of June 30, 2021, we have not adopted any expedients and exceptions under ASU 2020-04. We ~~are currently evaluating~~will continue to evaluate the impact of ASU 2020-04 on our consolidated financial statements.

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3. Revenue Recognition

Disaggregation of Revenue

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


	Three Months Ended				Nine Months Ended				Three Months Ended		Six Months Ended
	September 30,				September 30,				June 30,		June 30,
	2020		2019		2020		2019		2020		2020
North America	$	1,967	$	930,151	$	956,389	$	2,881,606	$	3,366	$	954,422
Europe		2,195		831,814		25,231		1,374,001		9,701		23,036
Asia-Pacific		362		128,415		151,283		418,421		—		150,921
South America		471		430		76,777		94,498		—		76,306
Other		1,523		23,041		60,649		213,232		3,862		59,126
Total revenue	$	6,518	$	1,913,851	$	1,270,329	$	4,981,758	$	16,929	$	1,263,811

Amounts for the three and six months ended June 30, 2021 were excluded as the information was not meaningful. North America includes the U.S., the Caribbean, Canada and Mexico. Europe includes the Baltic region, Canary Islands and Mediterranean. Asia-Pacific includes Australia, New Zealand and Asia. Other includes all other international territories.

Segment Reporting

We have concluded that our business has a single reportable segment. Each brand, Norwegian, Oceania Cruises and Regent, constitutes a business for which discrete financial information is available and management regularly reviews the brand level operating results and, therefore, each brand is considered an operating segment. Our operating segments have similar economic and qualitative characteristics, including similar long-term margins and similar products and services; therefore, we aggregate all of the operating segments into 1 reportable segment.

Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to U.S.-sourced guests who make reservations in the U.S. Revenue attributable to U.S.-sourced guests has historically approximated ~~75-80%.~~75-85% of total revenue. No other individual country’s revenues exceed 10% in any given period.

Contract Balances

Receivables from customers are included within accounts receivable, net. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our receivables from customers were ~~$4.1~~$0.9 million and ~~$15.3~~$1.0 million, respectively.

Beginning in March 2020, our brands launched new cancellation policies to permit our guests to cancel cruises which are not part of the Company’s temporary suspension of voyages up to ~~48 hours or~~ 15 days ~~depending on the brand,~~ prior to ~~embarkation and receive a refund in the form of a credit to be applied toward a future cruise.~~departure. These programs are currently in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through ~~specified time~~October 31, 2021. Certain cruises booked for certain periods, ~~depending on the brand. The future~~will be permitted a 60-day cancellation window for refunds. Future cruise ~~credit is~~credits that have been issued are valid for any sailing through December 31, 2022, and we may extend this offer. The future cruise credits are not contracts, and therefore, guests who ~~have~~ elected this option are excluded from our contract liability balance; however, the credit for the original amount paid is included in advance ticket ~~sales.~~sales or other long-term liabilities as applicable.

Our contract liabilities are included within advance ticket sales. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our contract liabilities were ~~$33.4~~$50.5 million and ~~$1.4 billion,~~$23.1 million, respectively. Of the amounts included within ~~contract liabilities as~~advance ticket

Table of ~~September 30, 2020, approximately 20% were~~Contents

sales, the vast majority of deposits held are refundable in accordance with our cancellation ~~policies.~~policies and it is uncertain to what extent guests may request refunds. Refunds payable to guests are included in accounts payable. For the ~~nine~~six months ended ~~September~~June 30, ~~2020, $0.9 billion of~~2021, no revenue recognized was included in the contract liability balance at the beginning of the period. The revenue recognized in the six months ended June 30, 2020 that was included in contract liabilities as of the beginning of the period was $0.9 billion.

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For cruise vacations that had been cancelled by us due to COVID-19, during the three months ended June 30, 2021 and 2020, approximately ~~$15.5~~$11.2 million and ~~$160.4~~$38.6 million, respectively, and during the six months ended June 30, 2021 and 2020, approximately $26.0 million and $130.6 million, respectively, in costs to obtain these contracts, consisting of protected commissions, including those paid to employees, and credit card fees, were recognized in ~~earnings during the three and nine months ended September 30, 2020, respectively.~~earnings.

~~4. Intangible Assets~~

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

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

Reporting Unit

Norwegian

Regent

Cruise

Oceania

Seven Seas

Total

Line

Cruises

Cruises

Goodwill
Balance, December 31, 2019

$
403,805

$
523,026

$
462,100

$
1,388,931
Impairment loss

(403,805)

(523,026)

(363,966)

(1,290,797)
Balance, September 30, 2020

$
—

$
—

$
98,134

$
98,134

We also impaired our trade names for Oceania Cruises and Regent Seven Seas Cruises by $170.0 million and $147.0 million, respectively. Following these impairments, the carrying value of our trade names was $500.5 million.

The carrying amounts of intangible assets subject to amortization are included within other long-term assets. The gross carrying amounts of intangible assets, the related accumulated amortization, the net carrying amounts and the weighted-average amortization periods of the Company’s intangible assets are listed in the following tables (in thousands, except amortization period):

September 30, 2020








Weighted-

Average

Gross Carrying

Accumulated

Net Carrying

Amortization

Amount

Amortization

Amount

Period (Years)
Customer relationships

$
120,000

$
(118,490)

$
1,510

6.0
License

750

(387)

363

10.0
Total intangible assets subject to amortization

$
120,750

$
(118,877)

$
1,873

December 31, 2019








Weighted-

Average

Gross Carrying

Accumulated

Net Carrying

Amortization

Amount

Amortization

Amount

Period (Years)
Customer relationships

$
120,000

$
(110,169)

$
9,831

6.0
Licenses

750

(331)

419

10.0
Total intangible assets subject to amortization

$
120,750

$
(110,500)

$
10,250

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~~The aggregate amortization expense for intangible assets is as follows (in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2020

2019

2020

2019
Amortization expense

$
2,792

$
4,622

$
8,377

$
13,866

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

Amortization
Year Ended December 31,

Expense
2021

$
75
2022

75
2023

75
2024

75
2025

44

5.4. Leases

In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19. In this guidance, entities can elect not to apply lease modification accounting with respect to such lease concessions and instead, treat the concession as if it was a part of the existing contract. The Company has elected to not evaluate leases under the lease modification accounting framework for concessions that result from effects of the COVID-19 pandemic. In relation to our rights to use port facilities, we have elected the approach consistent with resolving a contingency, which allows us to remeasure the lease liability and recognize the amount of change in the lease liability as an adjustment to the carrying amount of the associated right-of-use asset. As ~~of September 30, 2020, our port facilities were remeasured with a downward adjustment of $9.4 million to both other long-term assets and accrued expenses and other liabilities. As~~ the full amount of the concession will not be determinable until the force majeure period under the related arrangements have ended, ~~further~~periodic remeasurements will be required. During the contingency period, we are recognizing lease expense for these port facilities as incurred.

Lease balances were as follows (in thousands):


	Balance Sheet location	September 30, 2020		December 31, 2019		Balance Sheet location	June 30, 2021		December 31, 2020
Operating leases
Right-of-use assets	Other long-term assets	$	217,072	$	236,604	Other long-term assets	$	202,569	$	209,037
Current operating lease liabilities	Accrued expenses and other liabilities		23,574		39,126	Accrued expenses and other liabilities		22,450		17,700
Non-current operating lease liabilities	Other long-term liabilities		187,135		207,243	Other long-term liabilities		173,845		185,414

Finance leases
Right-of-use assets	Property and equipment, net		12,412		13,873	Property and equipment, net		10,960		11,948
Current finance lease liabilities	Current portion of long-term debt		4,951		6,419	Current portion of long-term debt		5,267		5,143
Non-current finance lease liabilities	Long-term debt		5,949		8,812	Long-term debt		2,718		4,648

5. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) for the six months ended June 30, 2021 was as follows (in thousands):


	Six Months Ended June 30, 2021
						Change
	Accumulated		Change			Related to
	Other		Related to			Shipboard
	Comprehensive		Cash Flow			Retirement
	Income (Loss)		Hedges			Plan
Accumulated other comprehensive income (loss) at beginning of period	$	(241,830)	$	(234,981)		$	(6,849)
Current period other comprehensive loss before reclassifications		(28,363)		(28,363)			—
Amounts reclassified into earnings		35,577		35,380	(1)		197	(2)
Accumulated other comprehensive income (loss) at end of period	$	(234,616)	$	(227,964)	(3)	$	(6,652)

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~~6. Accumulated Other Comprehensive Income (Loss)~~

Accumulated other comprehensive income (loss) for the ~~nine~~six months ended ~~September~~June 30, 2020 was as follows (in thousands):

Nine Months Ended September 30, 2020






Change


Accumulated

Change

Related to

Other

Related to

Shipboard

Comprehensive

Cash Flow

Retirement

Income (Loss)

Hedges

Plan

Accumulated other comprehensive income (loss) at beginning of period

$
(297,203)

$
(290,009)

$
(7,194)

Current period other comprehensive loss before reclassifications

(163,672)

(163,672)


—

Amounts reclassified into earnings

87,158

86,853
(1)

305
(2)
Accumulated other comprehensive income (loss) at end of period

$
(373,717)

$
(366,828)
(3)
$
(6,889)

~~Accumulated other comprehensive income (loss) for the nine months ended September 30, 2019 was as follows (in thousands):~~


	Nine Months Ended September 30, 2019								Six Months Ended June 30, 2020
						Change								Change
	Accumulated		Change			Related to			Accumulated		Change			Related to
	Other		Related to			Shipboard			Other		Related to			Shipboard
	Comprehensive		Cash Flow			Retirement			Comprehensive		Cash Flow			Retirement
	Income (Loss)		Hedges			Plan			Income (Loss)		Hedges			Plan
Accumulated other comprehensive income (loss) at beginning of period	$	(163,360)	$	(158,096)		$	(5,264)		$	(297,203)	$	(290,009)		$	(7,194)
Current period other comprehensive loss before reclassifications		(211,548)		(211,548)			—			(251,382)		(251,382)			—
Amounts reclassified into earnings		(16,438)		(16,722)	(1)		284	(2)		50,985		50,781	(1)		204	(2)
Accumulated other comprehensive income (loss) at end of period	$	(391,346)	$	(386,366)		$	(4,980)		$	(497,600)	$	(490,610)		$	(6,990)

(1)	We refer you to Note 9—7— “Fair Value Measurements and Derivatives” for the affected line items in the consolidated statements of operations.

(2)	Amortization of prior-service cost and actuarial loss reclassified to other income (expense), net.

(3)	Includes ~~$75.0~~$25.7 million of loss expected to be reclassified into earnings in the next 12 months.

~~7. Property and Equipment, net~~

Property and equipment, net increased $318.1 million for the nine months ended September 30, 2020 primarily due to the delivery of Seven Seas Splendor in January 2020 and ship improvement projects slightly offset by a $25.5 million impairment of projects that will not be completed, which has been recognized in depreciation and amortization expense for the nine months ended September 30, 2020.

8.6. Long-Term Debt

Credit Facilities

In ~~March~~January 2021, NCLC entered into an amendment agreement (the “First Amendment”), which amends the Amended and Restated Credit Agreement, dated as of May 8, 2020 ~~NCLC had borrowed~~(the “Fifth ARCA” and, as amended by the ~~full~~First Amendment, the “Senior Secured Credit Facility”). The First Amendment provides that, among other things, (a) amortization payments due between the First Amendment effective date and prior to June 30, 2022 (the “First Amendment Deferral Period”) on the Legacy Term Loan A and Term Loan A-1 held by lenders that have consented to such deferral (the “First Amendment Deferring Lenders”) are deferred and such deferred principal amount constitutes a separate tranche of ~~$875 million under its existing Revolving~~loans (the “Deferred Term Loan A-1”) and (b) the tranche of loans held by certain lenders (the “Fifth ARCA Deferring Lenders”) on which amortization payments due within the first year after effectiveness of the Fifth ARCA were deferred (the “Deferred Term Loan A”) of First Amendment Deferring Lenders were converted into Deferred Term Loan A-1 loans. The class of loans constituting the Term Loan A Facility ~~maturing on January 2, 2024. As~~(other than the Deferred Term Loan A) held by the Fifth ARCA Deferring Lenders (the “Term Loan A-1”) and the class of ~~September 30, 2020 borrowings~~loans constituting the portion of the Term Loan A Facility that is held by lenders other than the Fifth ARCA Deferring Lenders (the “Legacy Term Loan A”) that were held by the First Amendment Deferring Lenders (other than amounts converted into the Deferred Term Loan A-1) constitute a separate tranche of loans (the “Term Loan A-2”), with the same terms as the Legacy Term Loan A and Term Loan A-1 under the ~~Revolving~~Fifth ARCA, except that amortization payments on the Term Loan ~~Facility bear~~A-2 shall be deferred during the First Amendment Deferral Period and thereafter such Term Loan A-2 will amortize in an aggregate principal amount equal to approximately 5.88% per annum and the interest rate for Term Loan A-2 shall be modified as described below. The Deferred Term Loan A-1 will accrue interest (x) in the case of Eurocurrency loans, at a per annum rate based on LIBOR plus a margin of ~~1.75%~~2.50% or (y) in the case of base rate loans, at a per annum rate based on the base rate plus a margin of 1.50%. After the end of the First Amendment Deferral Period, the Deferred Term Loan A-1 will amortize in an aggregate principal amount equal to 25% per annum of the Deferred Term Loan A-1 outstanding immediately after the consummation of the First Amendment, in quarterly installments, and in the case of such payment due on the maturity date, an amount equal to the then unpaid principal amount of the Deferred Term Loan A-1 outstanding. The Legacy Term Loan A, Term Loan A-1 and Deferred Term Loan A that were held by lenders other than the First Amendment Deferring Lenders constitute separate classes of loans and were unchanged. The First Amendment resulted in deferred amortization payments aggregating approximately $70 million prior to June 30, 2022.

The First Amendment provides that, (a) from the First Amendment effective date to and including December 31, 2022 (the “Covenant Relief Period”) the testing of the loan to value, debt to capitalization and EBITDA to debt service covenants under the Senior Secured Credit Facility will be suspended and the free liquidity test will be replaced by a covenant to maintain at least $200 million in free liquidity, certified on a monthly basis. During the Covenant Relief

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~~In March 2020, NCLC entered into a $675 million~~Period the interest rate for Term Loan A-2 and revolving ~~credit facility maturing on March 4, 2021, with JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, and certain other lenders party thereto. NCLC borrowed $675 million under~~loans held by Lenders that consented to the ~~Epic Credit Facility, which bore interest at~~First Amendment will be LIBOR plus a margin of 0.80%. The facility was secured by Norwegian Epic, Ltd. In April 2020, NCLC entered into an incremental assumption agreement which extended the maturity date of the revolving facility commitments under the Epic Credit Facility to March 3, 2022. The revolving facility loans accrued interest at a per annum rate based on LIBOR plus a margin of 1.75% in the case of Eurocurrency loans or at a per annum rate based on the2.00% (or base rate plus 1.00%) with decreases subject to a ~~margin of 0.75% in~~leverage-based pricing grid. The First Amendment also makes certain other changes to the ~~case of base rate loans. The Epic~~Senior Secured Credit Facility, ~~was repaid in July 2020~~including tightening certain of the baskets applicable to our ability to make certain asset dispositions, investments and ~~terminated as discussed below.~~

~~In July 2020, NCLC entered into a EUR 31.2 million loan facility for newbuild related~~restricted payments. ~~The facility bears interest at a rate of 2.5% per annum. As of September 30, 2020, EUR 21.6 million was drawn under this facility, which matures on April 30, 2021.~~

~~Modifications~~

~~In April 2020,~~Additionally, in February 2021, NCLC amended ~~an aggregate amount~~all of ~~$386~~its export-credit backed facilities to defer amortization payments aggregating approximately $680 million through March 31, 2022 and/or make certain changes in respect of ~~export credit backed~~covenants and undertakings contained therein.

The facilities that finance Norwegian Breakaway, Norwegian Getaway, Norwegian Escape, Norwegian Joy, Norwegian Bliss, ~~and~~ Norwegian Encore, ~~to incorporate the terms of a~~ 12-month debt holiday initiative offered to the cruise industry by Euler Hermes Aktiengesellschaft (“Hermes”), the official export credit agency of Germany. The debt holiday was initiated to provide interim debt serviceSeven Seas Explorer, Seven Seas Splendor, Riviera and ~~financial covenant relief for borrowers during the current global COVID-19 pandemic with respect~~Marina were amended to ~~their Hermes guaranteed financings. The amended agreements~~ provide that, among other things, (a) amortization payments due from April 1, ~~2020~~2021 to March 31, ~~2021~~2022 (the ~~“Deferral~~“Second Deferral Period”) on the loans will be deferred and (b) the principal amounts so deferred will constitute separate tranches of loans under the facilities. The separate tranches of loans will accrue interest at a floating rate per annum based on six-month LIBOR plus a margin as follows:


	Margin
€529.8 million Breakaway one loan (Norwegian Breakaway)	~~0.90~~1.10	%
€529.8 million Breakaway two loan (Norwegian Getaway)	~~1.20~~1.40	%
€590.5 million Breakaway three loan (Norwegian Escape)	1.50	%
€729.9 million Breakaway four loan (Norwegian Joy)	1.50	%
€710.8 million Seahawk 1 term loan (Norwegian Bliss)	~~1.00~~1.20	%
€748.7 million Seahawk 2 term loan (Norwegian Encore)	~~1.00~~1.20	%

~~After the end of the Deferral Period, the deferred amounts will amortize in 8 equal semiannual installments.~~

Also in April 2020, NCLC amended its $230 million credit agreement, dated as of January 10, 2019, with Nordea Bank ABP, New York Branch, as administrative agent, and certain other lenders. The amendment extends the maturity date of the term loan to January 10, 2022. From January 10, 2021 to January 10, 2022, the loan shall accrue interest at a per annum rate based on LIBOR plus a margin of 1.75% in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 0.75% in the case of base rate loans.

In May 2020, NCLC amended its $260 million credit agreement, dated as of May 15, 2019, with Bank of America, N.A., as administrative agent and collateral agent, and certain other lenders. The amendment provides that (a) amortization payments due through May 1, 2021 will be deferred following the consummation of certain debt and equity financings, which resulted in aggregate gross proceeds greater than the amount required for the extension and (b) the principal amount so deferred will constitute a separate tranche of loans under the facility (the “Deferred Jewel Loans”). The Deferred Jewel Loans will accrue interest at a per annum rate based on LIBOR plus a margin of 2.50% in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 1.50% in the case of base rate loans. After the end of the deferral period, the deferred loan payments will amortize in an aggregate principal amount equal to 25% per annum in semiannual installments, and in the case of such payment due on the maturity date, an amount equal to the then unpaid principal amount of the Deferred Jewel Loans outstanding.

NCLC entered into a Fifth Amended and Restated Credit Agreement, dated as of May 8, 2020, with a subsidiary of NCLC, as co-borrower and JPMorgan Chase Bank, N.A., as administrative agent, and lenders holding 87.57% of the

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term loans outstanding (the “Term A Deferring Lenders”). This revised facility provides that, among other things, (a) amortization payments due within the first year after effectiveness on the loans under the term A loans (the “Term A Loans”) held by the Term A Deferring Lenders will be deferred and (b) the principal amount so deferred will constitute a separate tranche of loans (the “Deferred Term A Loans”). The Deferred Term A Loans will accrue interest (x) in the case of Eurocurrency loans, at a per annum rate based on LIBOR plus a margin of 2.50% or (y) in the case of base rate loans, at a per annum rate based on the base rate plus a margin of 1.50%. After the end of the deferral period, the Deferred Term A Loans will amortize in an aggregate principal amount equal to 25% per annum of the Deferred Term A Loans, in quarterly installments, and in the case of such payment due on the maturity date, an amount equal to the then unpaid principal amount of the Deferred Term A Loans outstanding. The Term A Loans (other than the Deferred Term A Loans) that are held by the Term A Deferring Lenders shall constitute a separate class of loans (the “Legacy Term A Loans”), with the same terms as the Term A Loans under the Fourth Amended and Restated Credit Agreement, except that the amortization payments on the Legacy Term A Loans shall be deferred during the deferral period. The Term A Loans that are held by lenders other than the Term A Deferring Lenders shall constitute a separate class of loans with the same terms as the Term A Loans under the Fourth Amended and Restated Credit Agreement.

In June 2020, NCLC amended the credit facilities secured by Seven Seas Explorer, Seven Seas Splendor, Riviera, Marina, Leonardo One and Leonardo Two to defer amortization with respect to certain of the debt outstanding under the agreements (the “Supplemental Agreements”). The amendments for the Seven Seas Explorer, Seven Seas Splendor, Riviera, Marina, Leonardo One and Leonardo Two facilities summarized below provide $156 million of incremental liquidity to the Company through March 2021 and are subject to certain customary conditions.

The Supplemental Agreements of Seven Seas Explorer, Seven Seas Splendor, Riviera, and Marina provide that, among other things, (a) amortization payments due during the Deferral Period on the loans will be deferred and (b) the principal amount so deferred will constitute a separate tranche of loans (the “Deferred Loans”). The Deferred Loans will accrue interest at a floating rate per annum based on six-month LIBOR plus a margin as follows:


	~~Margin~~
Explorer newbuild loan	~~2.80~~3.00	%
Splendor newbuild loan	~~1.75~~1.95	%
Marina newbuild loan	~~0.55~~0.75	%
Riviera newbuild loan	~~0.55~~0.75	%

After the end of the Second Deferral Period, the ~~Deferred Loans~~deferred loans will amortize in an aggregate principal amount equal to ~~25%~~20% per annum of the ~~Deferred Loans,~~deferred loans, in semiannual installments. ~~Consistent with our~~

In addition, all of NCLC’s export-credit backed facilities were amended to provide that, from the effective date of the amendments to ~~our Hermes-backed credit~~and including December 31, 2022, certain of the financial covenants under such facilities ~~described above,~~will be suspended and the ~~Supplemental Agreements provide financial~~free liquidity test will be replaced by a covenant ~~relief and additional~~to maintain at least $200 million in free liquidity. The amendments also made certain other changes to the facilities, including imposing further restrictions on ~~restricted payments~~NCLC’s ability to incur debt, create security, issue equity and make dividends and other distributions.

In April 2021, an agreement was executed to defer certain ~~other covenants were added.~~newbuild related debt amortization to July 2022. The aggregate amount of debt amortization that was deferred was €31.2 million, or $37.0 million based on the euro/U.S. dollar exchange rate as of June 30, 2021. The interest rate on the newbuild related debt was increased to 4.5% per annum.

The amendments of the agreements described above ~~modifications~~ resulted in aggregate modification ~~costs~~expenses of ~~$17.3~~$52.1 million ~~and a loss on extinguishment of debt of $5.0 million,~~for the six months ended June 30, 2021, which ~~are~~is recognized in interest expense, ~~net~~net.

In May 2021, NCLC entered into a €28.8 million loan facility for newbuild related payments. The facility bears interest at a rate of 4.5% per annum. As of June 30, 2021, €9.6 million, or $11.4 million based on the ~~nine months ended September~~euro/U.S. dollar exchange rate as of June 30, ~~2020.~~2021, was drawn under this facility, which matures on July 1, 2022.

~~Secured~~Unsecured Notes

In ~~May~~December 2020, NCLC conducted a private offering of ~~$675.0~~$850.0 million aggregate principal amount of ~~12.25%~~5.875% senior ~~secured~~unsecured notes due ~~May~~March 15, ~~2024~~2026 (the ~~“2024~~“2026 Senior ~~Secured~~Unsecured Notes”) ~~at 99% original issue discount.~~. In March 2021, NCLC completed an add-on offering of $575.0 million aggregate principal amount of additional 2026 Senior Unsecured Notes. The ~~2024~~2026 Senior ~~Secured~~

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Unsecured Notes pay interest at ~~12.25%~~5.875% per annum, semiannually on ~~May~~March 15 and ~~November~~September 15 of each year, ~~commencing on November 15, 2020,~~ to holders of record at the close of business on the immediately preceding ~~May~~March 1 and ~~November~~September 1, respectively. NCLC may redeem the ~~2024~~2026 Senior ~~Secured~~Unsecured Notes, in whole or part, at any time prior to ~~February~~December 15, 2024, at a price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date and a “make-whole premium.” NCLC may redeem the 2024 Senior Secured Notes, in whole or in part, on or after February 15, 2024, at a price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date. At any time prior to February 15, 2022, NCLC may choose to redeem up to 35% of the aggregate principal amount of the 2024 Senior Secured Notes, with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 112.25% of the principal amount of the 2024 Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the

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~~redemption date, so long as at least 65% of the aggregate principal amount of the 2024 Senior Secured Notes issued remains outstanding following such redemption.~~

The 2024 Senior Secured Notes are secured by first-priority interests in, among other things and subject to certain agreed security principles, shares of capital stock in certain subsidiary guarantors, two of our vessels, our material intellectual property and two islands that we use in the operations of our cruise business. The 2024 Senior Secured Notes are also guaranteed by our subsidiaries that own the property that secures the 2024 Senior Secured Notes as well as certain additional subsidiaries whose assets will not secure the 2024 Senior Secured Notes.

In July 2020, NCLC conducted a private offering of $750.0 million aggregate principal amount of 10.25% senior secured notes due February 1, 2026 (the “2026 Senior Secured Notes”). The 2026 Senior Secured Notes pay interest at 10.25% per annum, semiannually on February 1 and August 1 of each year, commencing on February 1, 2021, to holders of record at the close of business on the immediately preceding January 15 and July 15, respectively. NCLC may redeem the 2026 Senior Secured Notes, in whole or part, at any time prior to August 1, 2023,2025, at a price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date and a “make-whole premium.” NCLC may redeem the 2026 Senior ~~Secured~~Unsecured Notes, in whole or in part, on or after ~~August 1, 2023,~~December 15, 2025, at a price equal to 100% of the ~~redemption prices set forth in~~principal amount of the ~~indenture for the 2026 Senior Secures Notes~~notes plus accrued and unpaid interest to, but excluding, the redemption date. At any time and from time to time prior to ~~August 1, 2023,~~December 15, 2022, NCLC may choose to redeem up to ~~35%~~40% of the aggregate principal amount of the 2026 Senior ~~Secured~~Unsecured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to ~~110.25%~~105.875% of the principal amount of the 2026 Senior ~~Secured~~Unsecured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least ~~65%~~60% of the aggregate principal amount of the 2026 Senior ~~Secured~~Unsecured Notes issued remains outstanding following such redemption. The proceeds from the March 2021 issuance were used to repay the $230.0 million Pride of America Credit Facility and the remaining $222.6 million of the Jewel Credit Facility. The repayment of these debt agreements resulted in losses on extinguishment of debt of $1.1 million for the six months ended June 30, 2021, which is recognized in interest expense, net.

In March 2021, NCL Finance, Ltd., an indirect, wholly-owned subsidiary of NCLH and NCLC, additionally conducted a private offering of $525.0 million aggregate principal amount of 6.125% senior unsecured notes due March 15, 2028 (the “2028 Senior Unsecured Notes”). The 2028 Senior Unsecured Notes pay interest at 6.125% per annum, semiannually on March 15 and September 15 of each year, commencing on September 15, 2021, to holders of record at the close of business on the immediately preceding March 1 and September 1, respectively. NCL Finance may redeem the 2028 Senior Unsecured Notes, in whole or part, at any time prior to December 15, 2027, at a price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date and a “make-whole premium.” NCL Finance may redeem the 2028 Senior Unsecured Notes, in whole or in part, on or after December 15, 2027, at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the redemption date. At any time and from time to time prior to March 15, 2024, NCL Finance may choose to redeem up to 40% of the aggregate principal amount of the 2028 Senior Unsecured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 106.125% of the principal amount of the 2028 Senior Unsecured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 60% of the aggregate principal amount of the 2028 Senior Unsecured Notes issued remains outstanding following such redemption.

NCLC used a portion of the proceeds from the 2026 Senior Secured Notes to repay the $675 million plus accrued and unpaid interest outstanding under the Epic Credit Facility, which was secured by the Norwegian Epic. Following the termination of the Epic Credit Facility, the vessel owned and operated by Norwegian Epic, Ltd. was released as collateral, thereby enabling the 2026 Senior Secured Notes and certain of the related guarantees to be secured by a first-priority security interest in, among other things and subject to certain agreed security principles, the Norwegian Epic. The repayment and termination of the Epic Credit Facility resulted in a loss on extinguishment of $5.5 million, which was recognized in interest expense, net for the three and nine months ended September 30, 2020.

The indentures governing the ~~2024~~2026 Senior ~~Secured~~Unsecured Notes and ~~2026~~2028 Senior ~~Secured~~Unsecured Notes include requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets.

Exchangeable Notes

In ~~May~~August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which reduces the number of accounting models for convertible debt instruments and enhances transparency in disclosures. One model which is being eliminated is the bifurcation of embedded conversion features that are not accounted for separately as derivatives. Each of the 2024 Exchangeable Notes, 2025 Exchangeable Notes, and Private Exchangeable Notes (as defined below) contain or contained conversion options that may be settled with NCLH’s ordinary shares. As the options will be both indexed to and settled in ordinary shares of NCLH, they are accounted for separately as derivatives for NCLC. Due to the bifurcation of the options as derivatives, NCLC ~~conducted~~does not use one of the models that was eliminated, and the adoption of 2020-06 did not have a ~~private offering of~~material effect.

NCLC has outstanding $862.5 million aggregate principal amount of 6.00% exchangeable senior notes due May 15, 2024 (the “2024 Exchangeable Notes”). The 2024 Exchangeable Notes are guaranteed by NCLH on a senior basis.

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Holders may exchange their 2024 Exchangeable Notes at their option into redeemable preference shares of NCLC. Upon exchange, the preference shares will be immediately and automatically exchanged, for each $1,000 principal amount of exchanged 2024 Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate will initially be 72.7273 ordinary shares per $1,000 principal amount of 2024 Exchangeable Notes (equivalent to an initial exchange price of approximately $13.75 per ordinary share). The maximum exchange rate is 89.4454 and reflects potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events. The ~~maximum~~ exchange rate referred to above is also subject to adjustment for any stock split, stock dividend or similar transaction. The 2024 Exchangeable Notes pay interest at 6.00% per annum, semiannually on May 15 and November 15 of each year, ~~commencing on November 15, 2020,~~ to holders of record at the close of business on the immediately preceding May 1 and November 1, respectively.

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Also in May 2020, NCLH and NCLC entered into an investment agreement with an affiliate of L Catterton (the “Private Investor”), pursuant to which NCLC agreed to sell and issue to the Private Investor (the “Private Exchangeable Notes Transaction”) up to $400 million in aggregate principal amount of exchangeable senior notes due June 1, 2026 (the “Private Exchangeable Notes”). The Private Exchangeable Notes Transaction closed on May 28, 2020. The Private Exchangeable Notes accrue interest at a rate of 7.0% per annum for the first year post-issuance (which will accrete to the principal amount), 4.5% per annum interest (which will accrete to the principal amount) plus 3.0% per annum cash interest for the following four years and 7.5% per annum in cash interest for the final year prior to maturity. The Private Investor has certain registration rights in respect of NCLH’s ordinary shares underlying the Private Exchangeable Notes and is subject to certain customary transfer, voting and standstill restrictions.

The Private Exchangeable Notes are guaranteed by NCLH on a senior basis. Holders may exchange their Private Exchangeable Notes at their option into redeemable preference shares of NCLC. Upon exchange, the preference shares will be immediately and automatically exchanged, for each $1,000 principal amount of exchanged Private Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate will initially be approximately 82.6446 ordinary shares per $1,000 principal amount of Private Exchangeable Notes (equivalent to an initial exchange price of $12.10 per ordinary share). The maximum exchange rate is 90.9090 and reflects potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events. The maximum exchange rate referred to above is also subject to adjustment for any stock split, stock dividend or similar transaction. NCLC has the right to redeem all or a portion of the Private Exchange Notes at any time after the third anniversary of the issuance date at a price equal to 100% of the accreted principal amount thereof if the market closing price of NCLH’s ordinary shares has been at least 250% of the per share price implied by the exchange rate then in effect for at least ~~20 trading days during any 30 consecutive trading day period.~~

~~In July 2020,~~ NCLC ~~conducted a private offering of~~also has outstanding $450.0 million aggregate principal amount of 5.375% exchangeable senior notes due August 1, 2025 (the “2025 Exchangeable Notes”). The 2025 Exchangeable Notes are guaranteed by NCLH on a senior basis. Holders may exchange their 2025 Exchangeable Notes at their option into redeemable preference shares of NCLC. Upon exchange, the preference shares will be immediately and automatically exchanged, for each $1,000 principal amount of exchanged 2025 Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate will initially be 53.3333 ordinary shares per $1,000 principal amount of 2025 Exchangeable Notes (equivalent to an initial exchange price of approximately $18.75 per ordinary share). The maximum exchange rate is 66.6666 and reflects potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events. The ~~maximum~~ exchange rate referred to above is also subject to adjustment for any stock split, stock dividend or similar transaction. The 2025 Exchangeable Notes pay interest at 5.375% per annum, semiannually on February 1 and August 1 of each year, ~~commencing on February 1, 2021,~~ to holders of record at the close of business on the immediately preceding January 15 and July 15, ~~respectively~~respectively.

As of December 31, 2020, NCLC also had outstanding $414.3 million aggregate principal amount of exchangeable senior notes due June 1, 2026 (the “Private Exchangeable Notes”), which amount included interest that had accreted to the principal amount, which were held by an affiliate of L Catterton (the “Private Investor”). The Private Exchangeable Notes accrued interest at a rate of 7.0% per annum for the first year post-issuance (which accreted to the principal amount). Holders were able to exchange their Private Exchangeable Notes at their option into redeemable preference shares of NCLC. Upon exchange, the preference shares would be immediately and automatically exchanged, for each $1,000 principal amount of exchanged Private Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate was initially approximately 82.6446 ordinary shares per $1,000 principal amount of Private Exchangeable Notes (equivalent to an initial exchange price of $12.10 per ordinary share). The maximum exchange rate was 90.9090 and reflected potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events.

In March 2021, NCLH completed an equity offering that resulted in 52,577,947 ordinary shares being issued for gross proceeds of $1.6 billion. Approximately $1.0 billion of the cash proceeds from the offering were used to repurchase the Private Exchangeable Notes and extinguish the debt. The resulting loss on extinguishment was $236.0 million for the six months ended June 30, 2021, which is recognized in interest expense, net.

The ~~2024 Exchangeable Notes, 2025 Exchangeable Notes and Private Exchangeable Notes contain equity conversion options with~~following is a ~~value~~summary of ~~$1.2 billion~~NCLC’s convertible debt instruments as of ~~September~~June 30, 2020, which have been bifurcated from the debt host contracts. We refer you to Note 9 – “Fair Value Measurements and Derivatives” for further information. The net carrying amounts of the exchangeable notes, excluding the conversion options, consist of the following2021 (in thousands):


	September 30,				Unamortized Debt
	2020				Discount,
Principal amount	$	1,712,500
Less: Unamortized debt discount, including deferred financing fees		(913,978)
Net carrying value	$	798,522
			Principal		including Deferred		Net Carrying		Fair Value
			Amount		Financing Fees		Amount		Amount		Leveling
2024 Exchangeable Notes			$	862,500	$	(303,628)	$	558,872	$	2,016,560	Level 2
2025 Exchangeable Notes				450,000		(141,639)		308,361		844,295	Level 2

The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is ~~3.6 years, 4.8~~2.9 years and ~~5.7~~4.1 years for the 2024 Exchangeable Notes and 2025 Exchangeable Notes, ~~and Private Exchangeable Notes,~~ respectively.

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The following ~~table presents the interest expense recognized related to the exchangeable notes~~is a summary of NCLC’s convertible debt instruments as of December 31, 2020 (in thousands):


	Three Months		Nine Months				Unamortized Debt
	Ended September 30, 2020		Ended September 30, 2020				Discount,
Interest expense, including amortization of debt discounts and coupon interest	$	44,357	$	62,934
					Principal		including Deferred		Net Carrying		Fair Value
					Amount		Financing Fees		Amount		Amount		Leveling
2024 Exchangeable Notes					$	862,500	$	(338,571)	$	523,929	$	1,812,975	Level 2
2025 Exchangeable Notes						450,000		(153,299)		296,701		772,412	Level 2
Private Exchangeable Notes						414,311		(399,366)		14,945		1,098,082	Level 2

In addition, we recognize debt conversion options within exchangeable notes. Refer to Note 7— “Fair Value Measurements and Derivatives.”

The following provides a summary of the interest expense of NCLC’s convertible debt instruments (in thousands):


	Three Months		Six Months
	Ended June 30, 2021		Ended June 30, 2021
Coupon interest		18,985		43,125
Amortization of discount and deferred financing fees		24,150		47,763
Total	$	43,135	$	90,888

Interest expense, including amortization of debt discounts and coupon interest, recognized related to the 2024 Exchangeable Notes and Private Exchangeable Notes was $18.6 million for the three and six months ended June 30, 2020.

The effective interest rate is 22.78% and 15.89% for the 2024 Exchangeable Notes and 2025 Exchangeable Notes, respectively. The share price of NCLH, to which the value of the conversion option is indexed, had increased significantly between the execution of the agreement for the Private Exchangeable Notes and the date of issuance. As a result, the fair value of the conversion option at issuance exceeded the net proceeds received, and the carrying value of the note recognized was zero, which created an effective interest rate that was not measurable. The excess of the fair value over the net proceeds received was recognized as a loss within other income (expense), net. As the associated financing costs would create a negative carrying value for the note, they were charged to expense in other income (expense), net.

Debt Repayments

The following are scheduled principal repayments on our long-term debt including finance lease obligations as of ~~September~~June 30, ~~2020~~2021 for each of the following periods (in thousands):


Year	Amount		Amount
Remainder of 2020	$	3,506
2021		793,831
Remainder of 2021			$	18,271
2022		1,142,083		856,689
2023		767,986		924,216
2024		4,870,768		5,060,206
2025				1,054,008
Thereafter		3,708,196		4,579,284
Total	$	11,286,370	$	12,492,674

Debt Covenants

We have received certain financial and other debt covenant waivers through December 31, 2022 and added new free liquidity requirements. At ~~September~~June 30, ~~2020,~~2021, taking into account such waivers, we were in compliance with all of our debt covenants. ~~As part of the Hermes debt holiday and the Supplemental Agreements, we have obtained lender consents to waive compliance with financial covenants for the Deferral Period.~~ If we do not continue to remain in compliance with our covenants, including following the expiration of any current waivers, we would have to seek additional amendments to our covenants. However, no assurances can be made that such amendments would be approved by our lenders. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and

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derivative contract payables could become due, and all debt and derivative contracts could be terminated, which ~~could~~would have a material adverse impact toon our operations and liquidity.

9.7. Fair Value Measurements and Derivatives

Fair value is defined as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

Fair Value Hierarchy

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

Level 1 Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement dates.

~~Table of Contents~~

Level 2 Significant other observable inputs that are used by market participants in pricing the asset or liability based on market data obtained from independent sources.

Level 3 Significant unobservable inputs we believe market participants would use in pricing the asset or liability based on the best information available.

Derivatives

We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We attempt to minimize these risks through a combination of our normal operating and financing activities and through the use of derivatives. We assess whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the cash flow of our hedged forecasted transactions. We use regression analysis for this hedge relationship and high effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the fair values of the derivative and the hedged forecasted transaction. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction. If it is determined that the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other comprehensive income (loss) is released to earnings. There are no amounts excluded from the assessment of hedge effectiveness and there are no credit-risk-related contingent features in our derivative agreements. We monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. Credit risk, including but not limited to counterparty non-performance under derivatives, is not considered significant, as we primarily conduct business with large, well-established financial institutions with which we have established relationships, and which have credit risks acceptable to us, or the credit risk is spread out among many creditors. We do not anticipate non-performance by any of our significant counterparties.

As of ~~September~~June 30, ~~2020,~~2021, we had fuel swaps, which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately ~~895~~366 thousand metric tons of our projected fuel purchases, maturing through December 31, 2023. ~~Beginning in July 2020,~~

On January 1, 2021, our fuel swaps designated as hedges for ~~heavy fuel~~marine gas oil ~~failed the effectiveness tests required for recognition within accumulated other comprehensive income (loss).~~maturing through December 31, 2021 were dedesignated as cash flow hedges. As ~~a result, the change~~of June 30, 2021, we had, in ~~fair value related to these~~aggregate with previously dedesignated fuel swaps, ~~have been recognized in other income (expense), net for the three months ended September 30, 2020.~~

~~As of September 30, 2020, we had fuel swaps~~approximately 206 thousand metric tons which were not designated as cash flow ~~hedges. Due to a decrease in forecasted fuel consumption resulting from voyage cancellations due to COVID-19, we released into earnings fuel~~ hedges ~~of approximately 111 thousand metric tons of fuel as these forecasted transactions were no longer probable of occurring. The agreements mature~~maturing through ~~September 30, 2021.~~December 31, 2022.

As of ~~September~~June 30, ~~2020,~~2021, 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 notional amount of our foreign currency forward contracts was ~~€1.9~~€1.8 billion, or ~~$2.2~~$2.1 billion based on the euro/U.S. dollar exchange rate as of ~~September~~June 30, ~~2020.~~

As of September 30, 2020, we had interest rate swaps and collars, 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 swaps and collars was $0.7 billion as of September 30, 2020.

As of September 30, 2020, we had conversion options embedded in our exchangeable notes. The notional amounts of our outstanding options as of September 30, 2020 were 62.7 million, 24.0 million and 33.1 million NCLH shares for the 2024 Exchangeable Notes, 2025 Exchangeable Notes and Private Exchangeable Notes, respectively.2021.

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As of June 30, 2021, we had interest rate swaps and collars, 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 swaps and collars was $0.6 billion as of June 30, 2021.

As of June 30, 2021, we had conversion options embedded in our exchangeable notes. The notional amounts of our outstanding options as of June 30, 2021 were 62.7 million and 24.0 million NCLH shares for the 2024 Exchangeable Notes and 2025 Exchangeable Notes, respectively.

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


		Assets				Liabilities					Assets				Liabilities
		September 30,		December 31,		September 30,		December 31,			June 30,		December 31,		June 30,		December 31,
	Balance Sheet Location	2020		2019		2020		2019		Balance Sheet Location	2021		2020		2021		2020
Derivative Contracts Designated as Hedging Instruments

Fuel contracts
										Prepaid expenses and other assets	$	6,921	$	—	$	—	$	—
	Other long-term assets	$	—	$	277	$	—	$	—	Other long-term assets		17,054		—		—		—
	Accrued expenses and other liabilities		—		2,300		55,937		18,257	Accrued expenses and other liabilities		—		—		—		35,973
	Other long-term liabilities		—		683		64,509		17,763	Other long-term liabilities		—		—		—		28,947
Foreign currency contracts
	Prepaid expenses and other assets		1,522		—		—		—	Prepaid expenses and other assets		1,702		5,779		—	��	—
	Other long-term assets		24,799		—		—		—	Other long-term assets		25,389		43,250		—		—
	Accrued expenses and other liabilities		—		—		17,868		33,475	Accrued expenses and other liabilities		—		—		74,084		14,778
	Other long-term liabilities		2,088		169		102,522		118,500	Other long-term liabilities		2,466		6,821		30,563		44,938
Interest rate contracts
	Accrued expenses and other liabilities		—		—		8,188		2,178	Accrued expenses and other liabilities		—		—		2,919		6,776
	Other long-term liabilities		—		—		1,233		1,861	Other long-term liabilities		—		—		—		452
Total derivatives designated as hedging instruments		$	28,409	$	3,429	$	250,257	$	192,034		$	53,532	$	55,850	$	107,566	$	131,864

Derivative Contracts Not Designated as Hedging Instruments

Fuel contracts	Accrued expenses and other liabilities	$	10	$	—	$	16,265	$	—
	Other long-term liabilities		—		—		12		—	Prepaid expenses and other assets	$	6,206	$	—	$	1,284	$	—
										Other long-term assets		2,452		—		—		—
										Accrued expenses and other liabilities		—		546		—		6,732
										Other long-term liabilities		—		—		—		3,534

Debt conversion options	Exchangeable notes		—		—		1,179,175		—	Exchangeable notes		—		—		1,507,451		1,856,145
Total derivatives not designated as hedging instruments		$	10	$	—	$	1,195,452	$	—		$	8,658	$	546	$	1,508,735	$	1,866,411
Total derivatives		$	28,419	$	3,429	$	1,445,709	$	192,034		$	62,190	$	56,396	$	1,616,301	$	1,998,275

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 option pricing models 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 models used by the Company are industry standard models for valuing options and are used by the broker/dealer community. The inputs to the option pricing models are the option strike prices, underlying prices, risk-free rates of interest, time to expiration, and both historical and implied volatilities. The fair values of option contracts consider both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values.

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

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

Gross



Gross


Gross

Amounts

Total Net

Amounts

September 30, 2020

Amounts

Offset

Amounts

Not Offset

Net Amounts
Assets

$
26,321

$
—

$
26,321

$
(26,321)

$
—
Liabilities

1,445,709

(2,098)

1,443,611

(1,290,289)

153,322

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Gross



Gross


Gross

Amounts

Total Net

Amounts

December 31, 2019

Amounts

Offset

Amounts

Not Offset

Net Amounts
Assets

$
277

$
—

$
277

$
—

$
277
Liabilities

192,034

(3,152)

188,882

(149,863)

39,019

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

Location of Gain

(Loss) Reclassified

from Accumulated

Amount of Gain (Loss) Reclassified

Amount of Gain (Loss)

Other Comprehensive

from Accumulated Other

Recognized in Other

Income (Loss) into

Comprehensive
Derivatives

Comprehensive Income

Income

Income (Loss) into Income

Three Months

Three Months

Three Months

Three Months

Ended

Ended

Ended

Ended


September 30, 2020

September 30, 2019


September 30, 2020

September 30, 2019
Fuel contracts

$
(10,958)

$
(65,726)

Fuel

$
(15,091)

$
1,657
Fuel contracts

—

—

Other income (expense), net

(17,434)

—
Foreign currency contracts

98,539

(142,627)

Depreciation and amortization

(1,267)

(703)
Interest rate contracts

129

(1,158)

Interest expense, net

(2,280)

(506)
Total gain (loss) recognized in other comprehensive income

$
87,710

$
(209,511)



$
(36,072)

$
448

Location of Gain

(Loss) Reclassified

from Accumulated

Amount of Gain (Loss) Reclassified

Amount of Gain (Loss)

Other Comprehensive

from Accumulated Other

Recognized in Other

Income (Loss) into

Comprehensive
Derivatives

Comprehensive Income

Income

Income (Loss) into Income

Nine Months

Nine Months

Nine Months

Nine Months

Ended

Ended

Ended

Ended

September 30, 2020

September 30, 2019


September 30, 2020

September 30, 2019
Fuel contracts

$
(181,666)

$
14,205

Fuel

$
(35,186)

$
19,060
Fuel contracts

—

—

Other income (expense), net

(43,718)

—
Foreign currency contracts

28,346

(218,724)

Depreciation and amortization

(3,662)

(2,108)
Interest rate contracts

(10,352)

(7,029)

Interest expense, net

(4,287)

(230)
Total gain (loss) recognized in other comprehensive income

$
(163,672)

$
(211,548)



$
(86,853)

$
16,722

2420

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with our counterparties. We have elected to net certain assets and liabilities within counterparties when the rights of offset exist. We are not required to post cash collateral related to our derivative instruments.

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


			Gross				Gross
	Gross		Amounts		Total Net		Amounts
June 30, 2021	Amounts		Offset		Amounts		Not Offset		Net Amounts
Assets	$	59,724	$	(1,284)	$	58,440	$	(27,091)	$	31,349
Liabilities		1,615,017		(2,466)		1,612,551		(1,602,232)		10,319


			Gross				Gross
	Gross		Amounts		Total Net		Amounts
December 31, 2020	Amounts		Offset		Amounts		Not Offset		Net Amounts
Assets	$	49,029	$	—	$	49,029	$	(49,029)	$	—
Liabilities		1,998,275		(7,367)		1,990,908		(1,913,496)		77,412

The effects of cash flow hedge accounting on ~~the consolidated statements of operations include the following~~accumulated other comprehensive income (loss) were as follows (in thousands):


	Three Months Ended September 30, 2020								Three Months Ended September 30, 2019										Location of Gain
			Depreciation								Depreciation								(Loss) Reclassified
			and		Interest		Other Income				and		Interest						from Accumulated	Amount of Gain (Loss) Reclassified
	Fuel		Amortization		Expense, net		(Expense), net		Fuel		Amortization		Expense, net		Amount of Gain (Loss)				Other Comprehensive	from Accumulated Other
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	$	48,224	$	177,488	$	154,501	$	(89,005)	$	98,943	$	156,215	$	60,188
															Recognized in Other				Income (Loss) into	Comprehensive Income
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income
Derivatives															Comprehensive Loss				Income (Expense)	(Loss) into Income (Expense)
															Three Months		Three Months			Three Months		Three Months
															Ended		Ended			Ended		Ended
															June 30, 2021		June 30, 2020			June 30, 2021		June 30, 2020
Fuel contracts															$	25,456	$	27,769	Fuel	$	(8,652)	$	(13,878)
Fuel contracts		(15,091)		—		—		—		1,657		—		—		—		—	Other income (expense), net		(1,538)		(11,964)
Foreign currency contracts		—		(1,267)		—		—		—		(703)		—		19,281		27,694	Depreciation and amortization		(1,266)		(1,266)
Interest rate contracts		—		—		(2,280)		—		—		—		(506)		(63)		(985)	Interest expense, net		(2,086)		(1,674)

Amount of loss reclassified from accumulated other comprehensive income (loss) into income as a result that a forecasted transaction is no longer probable of occurring
Fuel contracts		—		—		—		(17,434)		—		—		—

Amount of gain recognized in income as a result of failing effectiveness tests
Fuel contracts		—		—		—		5,507		—		—		—
Total gain (loss) recognized in other comprehensive loss															$	44,674	$	54,478		$	(13,542)	$	(28,782)

Nine Months Ended September 30, 2020

Nine Months Ended September 30, 2019



Depreciation

Depreciation

and

Interest

Other Income

and

Interest

Fuel

Amortization

Expense, net

(Expense), net

Fuel

Amortization

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

$
222,240

$
554,937

$
343,993

$
(325,412)

$
297,727

$
482,227

$
199,660














Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income














Fuel contracts

(35,186)

—

—

—

19,060

—

—
Foreign currency contracts

—

(3,662)

—

—

—

(2,108)

—
Interest rate contracts

—

—

(4,287)

—

—

—

(230)

Amount of loss reclassified from accumulated other comprehensive income (loss) into income as a result that a forecasted transaction is no longer probable of occurring

Fuel contracts

—

—

—

(43,718)

—

—

—

Amount of gain recognized in income as a result of failing effectiveness tests

Fuel contracts

—

—

—

5,507

—

—

—


					Location of Gain
					(Loss) Reclassified
					from Accumulated	Amount of Gain (Loss) Reclassified
	Amount of Gain (Loss)				Other Comprehensive	from Accumulated Other
	Recognized in Other				Income (Loss) into	Comprehensive Income
Derivatives	Comprehensive Loss				Income (Expense)	(Loss) into Income (Expense)
	Six Months		Six Months			Six Months		Six Months
	Ended		Ended			Ended		Ended
	June 30, 2021		June 30, 2020			June 30, 2021		June 30, 2020
Fuel contracts	$	49,506	$	(170,708)	Fuel	$	(16,823)	$	(20,095)
Fuel contracts		—		—	Other income (expense), net		(11,728)		(26,284)
Foreign currency contracts		(78,160)		(70,193)	Depreciation and amortization		(2,533)		(2,395)
Interest rate contracts		291		(10,481)	Interest expense, net		(4,296)		(2,007)
Total gain (loss) recognized in other comprehensive loss	$	(28,363)	$	(251,382)		$	(35,380)	$	(50,781)

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


	Three Months Ended June 30, 2021								Three Months Ended June 30, 2020
			Depreciation								Depreciation
			and		Interest		Other Income				and		Interest		Other Income
	Fuel		Amortization		Expense, net		(Expense), net		Fuel		Amortization		Expense, net		(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	$	54,090	$	174,262	$	179,448	$	(82,627)	$	48,992	$	179,252	$	120,585	$	(242,230)

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (expense)
Fuel contracts		(8,652)		—		—		—		(13,878)		—		—		—
Foreign currency contracts		—		(1,266)		—		—		—		(1,266)		—		—
Interest rate contracts		—		—		(2,086)		—		—		—		(1,674)		—

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (expense) as a result that a forecasted transaction is no longer probable of occurring
Fuel contracts		—		—		—		(1,538)		—		—		—		(11,964)

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	Six Months Ended June 30, 2021								Six Months Ended June 30, 2020
			Depreciation								Depreciation
			and		Interest		Other Income				and		Interest		Other Income
	Fuel		Amortization		Expense, net		(Expense), net		Fuel		Amortization		Expense, net		(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	$	96,693	$	344,578	$	639,780	$	(371,892)	$	174,016	$	377,449	$	189,492	$	(236,407)

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (expense)
Fuel contracts		(16,823)		—		—		—		(20,095)		—		—		—
Foreign currency contracts		—		(2,533)		—		—		—		(2,395)		—		—
Interest rate contracts		—		—		(4,296)		—		—		—		(2,007)		—

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (expense) as a result that a forecasted transaction is no longer probable of occurring
Fuel contracts		—		—		—		(11,728)		—		—		—		(26,284)

The effects of derivatives not designated as hedging instruments on the consolidated statements of operations include the following (in thousands):


		Amount of Gain (Loss) Recognized in Income									Amount of Gain (Loss) Recognized in Income
		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
	Location of Gain (Loss)	2020		2019		2020		2019		Location of Gain (Loss)	2021		2020		2021		2020
Derivatives not designated as hedging instruments
Fuel contracts	Other income (expense), net	$	(17)	$	—	$	3,629	$	—	Other income (expense), net	$	17,935	$	3,646	$	50,107	$	3,646
Debt conversion options	Other income (expense), net		(65,225)		—		(280,850)		—	Other income (expense), net		(108,127)		(215,625)		(424,636)		(215,625)

Long-Term Debt

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the fair value of our long-term debt, including the current portion, was ~~$12,022.1 million and $6,957.8 million, respectively,~~$14.2 billion, which was ~~$435.4 million~~$0.7 billion higher and ~~$31.3 million~~$1.0 billion higher, respectively, than the carrying values, excluding deferred financing costs. 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 revolving and term loan facilities was calculated based on estimated rates for the same or similar instruments with similar terms and remaining maturities. The fair value of our exchangeable notes considers observable risk-free rates; credit spreads of the same or similar instruments; and share prices, tenors, and historical and implied volatilities which are sourced from observable market data. The inputs are considered to be Level 2 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 or from an increase in share values.

~~Goodwill and Trade Names~~23

~~Goodwill and trade names are nonfinancial instruments that are measured at fair value on a non-recurring basis. 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 measured a goodwill impairment loss by comparing the implied fair value~~Table of a reporting unit’s goodwill with the carrying amount of that goodwill. The guidance was adopted with an effective date of January 1, 2020, and therefore, our interim goodwill impairment tests as of March 31, 2020 were performed using only a Step 1 test.Contents

The Step 1 Test used discounted future cash flows and other market data to determine the fair value of the reporting units at March 31, 2020, which are all considered Level 3 inputs. Our discounted cash flow valuation reflected our principal assumptions of 1) forecasted future operating results and growth rates, which have been prepared under multiple scenarios and are probability weighted, 2) forecasted capital expenditures for fleet growth and ship improvements and 3) a weighted average cost of capital of market participants. Historically, our Step 1 Test consisted of a combined approach using discounted future cash flows and market multiples to determine the fair value of the reporting units. However, for the March 31, 2020 Step 1 Test, the market multiples were used solely as a corroboratory approach given the impact of COVID-19 on the current year’s results, as of the valuation date, as well as prospective results including the lack of any guidance provided, which were not available for our peers. We believe that this approach is the most representative method to assess fair value as it utilizes expectations of long-term growth as well as current market conditions. For the trade names, we used the relief from royalty method, which uses the same forecasts and discount rates from the discounted cash flow valuation in the goodwill assessment along with a trade name royalty rate assumption. We believe that we made reasonable estimates and judgments. However, a change in our estimated future operating cash flows may result in a decline in fair value in future periods, which may result in a need to recognize additional impairment charges.

Other

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

~~Table of Contents~~

~~10.~~8. Employee Benefits and Compensation Plans

In January 2013, NCLH adopted the 2013 Performance Incentive Plan, which provided for the issuance of up to 15,035,106 of NCLH’s ordinary shares pursuant to awards granted under the plan. In May 2016, the plan was amended and restated (“Restated 2013 Plan”) pursuant to approval from NCLH’s Board of Directors and NCLH’s shareholders. Among other things, under the Restated 2013 Plan, the number of NCLH’s ordinary shares that may be delivered pursuant to all awards granted under the plan was increased by an additional 12,430,000 shares to a new maximum aggregate limit of 27,465,106 shares. In May 2021, the Restated 2013 Plan was further amended and restated to increase the number of NCLH ordinary shares that may be delivered by 4,910,000 shares to 32,375,106 shares.

Share Option Awards

The following is a summary of option activity under NCLH’s ~~Amended and~~ Restated 2013 ~~Performance Incentive~~ Plan for the ~~nine~~six months ended ~~September~~ June��30, ~~2020:~~2021:


										Weighted-												Weighted-
	Number of Share Option Awards			Weighted-Average Exercise Price						Average	Aggregate		Number of Share Option Awards			Weighted-Average Exercise Price						Average	Aggregate
	Time-	Performance-	Market-	Time-		Performance-		Market-		Contractual	Intrinsic		Time-	Performance-	Market-	Time-		Performance-		Market-		Contractual	Intrinsic
	Based	Based	Based	Based		Based		Based		Term	Value		Based	Based	Based	Based		Based		Based		Term	Value
	Awards	Awards	Awards	Awards		Awards		Awards		(years)	(in thousands)		Awards	Awards	Awards	Awards		Awards		Awards		(years)	(in thousands)
Outstanding as of January 1, 2020	4,918,554	115,489	208,333	$	51.84	$	59.11	$	59.43	5.42	$	33,413
Exercised	(48,221)	(906)	—		44.38		19.00		—
Outstanding as of January 1, 2021													4,525,207	114,583	208,333	$	51.96	$	59.43	$	59.43	4.42	$	—
Forfeited and cancelled	(272,709)	—	—		51.22		—		—				(26,833)	—	—		53.62		—		—
Outstanding as of September 30, 2020	4,597,624	114,583	208,333		51.95		59.43		59.43	4.68		—
Outstanding as of June 30, 2021													4,498,374	114,583	208,333		51.95		59.43		59.43	3.93		—

Restricted Share Unit Awards

~~On July 27, 2020,~~In June 2021, NCLH granted ~~2.5~~3.1 million time-based restricted share unit awards to our employees, which vest on July 27, 2022. Additionally, on July 27, 2020, NCLH granted 0.3 million performance-based restricted share units to certain members of our management team, which vest upon the achievement of certain non-financial performance hurdles and generally require continued employment through July 27, 2022.

~~On March 2, 2020, NCLH granted 2.4 million time-based restricted share unit awards to our employees, which~~primarily vest in substantially equal ~~annual~~ installments each March 1 over three years. Additionally, ~~on March 2, 2020,~~in June 2021, NCLH granted ~~0.6~~0.7 million performance-based restricted share units to certain members of our management team, which vest upon the achievement of certain pre-established performance targets established ~~for the 2020 and 2021 calendar years~~through 2023 and the satisfaction of an additional time-based vesting requirement that generally requires continued employment through March 1, ~~2023.~~2024.

The following is a summary of NCLH restricted share unit activity for the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:

Number of

Weighted-

Number of

Weighted-

Number of

Weighted-

Time-Based

Average Grant

Performance-

Average Grant

Market-

Average Grant

Awards

Date Fair Value

Based Awards

Date Fair Value

Based Awards

Date Fair Value
Non-vested as of January 1, 2020

3,245,625

$
54.94

1,129,396

$
56.09

50,000

$
59.43
Granted

5,034,103

24.13

945,598
(1)

27.75

—

—
Vested

(1,600,357)

54.20

(181,682)

56.33

—

—
Forfeited or expired

(304,685)

44.07

(63,026)

47.45

—

—
Non-vested as of September 30, 2020

6,374,686

31.31

1,830,286

41.72

50,000

59.43

~~(1)~~

~~Number of performance-based restricted share units included assumes maximum achievement of performance targets.~~


	Number of	Weighted-		Number of	Weighted-		Number of	Weighted-
	Time-Based	Average Grant		Performance-	Average Grant		Market-	Average Grant
	Awards	Date Fair Value		Based Awards	Date Fair Value		Based Awards	Date Fair Value
Non-vested as of January 1, 2021	6,663,925	$	30.54	1,565,184	$	39.42	50,000	$	59.43
Granted	3,124,241		30.92	736,898		40.89	—		—
Vested	(1,743,479)		47.01	(460,969)		56.73	—		—
Forfeited or expired	(131,969)		26.48	—		—	—		—
Non-vested as of June 30, 2021	7,912,718		27.13	1,841,113		35.68	50,000		59.43

The compensation expense recognized for share-based compensation for the periods presented include the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,


2020

2019

2020

2019
Payroll and related expense

$
5,483

$
4,489

$
15,214

$
12,974
Marketing, general and administrative expense

20,379

20,931

65,795

69,096
Total share-based compensation expense

$
25,862

$
25,420

$
81,009

$
82,070


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Payroll and related expense	$	4,735	$	5,029	$	9,700	$	9,731
Marketing, general and administrative expense		17,716		17,360		39,352		45,416
Total share-based compensation expense	$	22,451	$	22,389	$	49,052	$	55,147

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~~11.~~

9. Commitments and Contingencies

Ship Construction Contracts

Project Leonardo will introduce an additional 6 ships, each ranging from approximately 140,000 to 156,300 Gross Tons with approximately ~~3,300~~3,215 to 3,550 Berths, with expected delivery dates from 2022 through 2027. For the Regent brand, we have an order for 1 Explorer Class Ship to be delivered in 2023, which will be approximately 55,000 Gross Tons and 750 Berths. For the Oceania Cruises brand, we have orders for 2 Allura Class Ships to be delivered in 2023 and 2025. Each of the Allura Class Ships will be approximately 67,000 Gross Tons and 1,200 Berths. The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged.

The combined contract prices of the 9 ships on order for delivery as of ~~September~~June 30, ~~2020~~2021 was approximately ~~€7.1~~€7.6 billion, or ~~$8.3~~$9.0 billion based on the euro/U.S. dollar exchange rate as of ~~September~~June 30, ~~2020.~~2021. We have obtained export credit financing which is expected to fund approximately 80% of the contract price of each ship, subject to certain conditions. We do not anticipate any contractual breaches or cancellations to occur. However, if any such events were to occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.

In July 2021, we amended 9 credit facilities for our newbuild agreements and increased the combined commitments under such credit facilities by approximately $770 million to cover owner’s supply (generally consists of provisions for the ship), modifications and financing premiums.

Litigation

Class Actions

On March 12, 2020, a class action complaint, Eric Douglas v. Norwegian Cruise Lines, Frank J. Del Rio and Mark A. Kempa, Case No. 1:20-CV-21107, was filed in the United States District Court for the Southern District of Florida, naming the Company, Frank J. Del Rio, the Company’s President and Chief Executive Officer, and Mark A. Kempa, the Company’s Executive Vice President and Chief Financial Officer, as defendants. Subsequently, ~~two~~2 similar class action complaints were also filed in the United States District Court for the Southern District of Florida naming the same defendants. On July 31, 2020, a consolidated amended class action complaint was filed by lead plaintiff’s counsel. The complaint ~~asserts~~asserted claims, purportedly brought on behalf of a class of shareholders, under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and ~~allege~~alleged that the Company made false and misleading statements to the market and customers about COVID-19. The complaint ~~seeks~~sought unspecified damages and an award of costs and expenses, including reasonable attorneys’ fees, on behalf of a purported class of purchasers of our ordinary shares between February 20, 2020 and March 10, 2020. ~~We believe that~~On April 10, 2021, the ~~allegations contained in~~case was dismissed and closed, and the ~~complaint are without merit and intend~~plaintiffs no longer have the right to ~~defend the complaint vigorously. We cannot predict at this point the length of time that this action will be ongoing or the liability, if any, which may arise therefrom.~~appeal.

In addition, in March 2020 the Florida Attorney General announced an investigation related to the Company’s marketing during the COVID-19 pandemic. Following the announcement of the investigation by the Florida Attorney General, we received notifications from other attorneys general and governmental agencies that they are conducting similar investigations. The Company is cooperating with these ongoing investigations, the outcomes of which cannot be predicted at this time.

Helms-Burton Act

On August 27, 2019, ~~two~~2 lawsuits were filed against NCLH in the United States District Court for the Southern District of Florida under Title III of the Cuban Liberty and Solidarity (Libertad) Act of 1996, also known as the Helms-Burton Act. The complaint filed by Havana Docks Corporation alleges it holds an interest in the Havana Cruise Port Terminal and the complaint filed by Javier Garcia-Bengochea alleges that he holds an interest in the Port of Santiago, Cuba, both

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of which were expropriated by the Cuban Government. The complaints further allege that the Company “trafficked” in those properties by embarking and disembarking passengers at these facilities. The plaintiffs seek all available statutory remedies, including the value of the expropriated property, plus interest, treble damages, attorneys’ fees and costs. On January 7, 2020, the United States District Court for the Southern District of Florida dismissed the claim by Havana

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Docks Corporation. On April 14, 2020, the district court granted Havana Docks Corporation’s motion to reconsider and vacated its order dismissing the claim, allowing Havana Docks Corporation to file an amended complaint on April 16, 2020. On April 24, 2020, we filed a motion seeking permission to appeal the district court’s order which was subsequently denied. On September 1, 2020, the Court entered an order staying all case deadlines and administratively closed the Garcia-Bengochea matter pending the outcome of the appeal in a related case brought by the same plaintiff. We believe we have meritorious defenses to the claims and intend to vigorously defend these matters. As of ~~September~~June 30, ~~2020,~~2021, we are unable to reasonably estimate any potential contingent loss from these matters due to a lack of legal ~~precedence.~~precedent.

Other

In the normal course of our business, various other claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability is typically limited to our deductible amount.

Nonetheless, the ultimate outcome of these claims and lawsuits that are not covered by insurance cannot be determined at this time. We have evaluated our overall exposure with respect to all of our threatened and pending litigation and, to the extent required, we have accrued amounts for all estimable probable losses associated with our deemed exposure. We are currently unable to estimate any other potential contingent losses beyond those accrued, as discovery is not complete nor is adequate information available to estimate such range of loss or potential recovery. 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.

Other Contingencies

The Company also has agreements with its credit card processors that govern approximately ~~$1.0~~$1.2 billion at ~~September~~June 30, ~~2020~~2021 in advance ticket sales that have been received by the Company relating to future voyages. These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, that the Company maintain a reserve which ~~could~~would be satisfied by posting collateral. ~~Currently, we have had approximately $40 million of advanced ticket deposits withheld to satisfy~~Although the agreements vary, these requirements ~~and have provided~~may generally be satisfied either through a ~~reserve consisting~~percentage of ~~$70 million of cash. We have also discussed~~customer payments withheld or providing second priority liens on certain ships with a collective equity value of approximately $700 million based on appraisals as of December 31, 2019. Until these discussions are finalized, a significant portion of incoming advance ticket deposits are being withheld and will be released upon satisfactory perfection ofcash funds directly to the ~~liens. These discussions are ongoing, and any~~card processor. Any cash reserve or collateral requested could be increased or decreased. IfAs of June 30, 2021, we dohad a reserve of approximately $800 million with a credit card processor recognized in accounts receivable, net or other long-term assets. Additionally, we are required to fund all refunds until further notice and 100% of incoming advance ticket sales deposits with this credit card processor will be withheld and are not ~~meet an agreed upon minimum liquidity in~~expected to be released until the ~~future, we~~credit card processor’s exposure is fully collateralized. As of June 30, 2021, the exposure was approximately $940 million. The reserve shortfall of approximately $140 million will decrease as refunds are funded, cruises are provided and amounts withheld by the credit card processor are allocated to the reserve rather than remitted to the Company. We may be required to pledge additional collateral and/or post cash reserves or take other actions that may further reduce our liquidity.

~~12.~~10. Other Income (Expense), Net

For the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, other income (expense), net was of an expense of ~~$89.0~~$82.6 million and ~~$325.4~~$242.2 million, respectively, and for the six months ended June 30, 2021 and 2020, was of an expense of $371.9 million and $236.4 million, respectively, primarily due to losses from conversion options on our exchangeable notes. For the three months ended September 30, 2019, other income (expense), net was income of $10.3 million primarily due to foreign currency exchange gains. For the nine months ended September 30, 2019, other income (expense), net was income of $13.4 million primarily due to gains from insurance proceeds and a litigation settlement and foreign currency exchange gains.

~~13. Income Tax Benefit (Expense)~~

For the three and nine months ended September 30, 2020, we had an income tax benefit of $2.8 million and $13.2 million, respectively. For the three and nine months ended September 30, 2019, we had income tax expense of $7.1 million and an income tax benefit of $23.4 million, respectively.

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For the three months ended September 30, 2020, the tax benefit is due to operating losses. For the nine months ended September 30, 2020, the tax benefit is due to operating losses and the reversal of a valuation allowance. During 2018, we implemented certain tax restructuring strategies that created our ability to utilize the net operating loss carryforwards of Prestige, for which we had previously provided a full valuation allowance. As a result, we recorded a tax benefit of $35.7 million in connection with the reversal of substantially all of the valuation allowance in March 2019.

~~14.~~11. Supplemental Cash Flow Information

For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, we had non-cash investing activities consisting of changes in accruals related to property and equipment of ~~$(29.1)~~$49.1 million and ~~$17.4~~$7.2 million, respectively. Additionally, during the nine months ended September 30, 2020, we received seller financing related to the acquisition of property and equipment resulting in both non-cash investing and financing activities of $11.9 million.

~~15.~~12. Related Party Disclosures

NCLC, as issuer, NCLH, as guarantor, and U.S. Bank National Association, as trustee ~~are~~were all parties to an indenture, dated May 28, 2020 (the “Indenture”) related to the Private Exchangeable Notes, which ~~are currently~~were held by the Private Investor. The terms of the ~~Indenture~~Private Exchangeable Notes are more fully described under Note 86 — “Long-Term Debt”. Based on the initial exchange rate for the Private Exchangeable Notes, the Private Investor beneficially owned ~~over~~approximately 10% of NCLH’s outstanding ordinary shares as of ~~September 30,~~December 31, 2020. The initial exchange rate infor the Private Exchangeable Notes ~~may be~~could have been adjusted in the event of certain make-whole fundamental changes or tax redemption events (each, as described in the Indenture), but the maximum number of NCLH ordinary shares issuable upon an exchange in the event of such an adjustment would not ~~exceed~~have exceeded 46,577,947. The Private Exchangeable Notes also ~~contain~~contained certain anti-dilution provisions that could ~~subject~~have subjected the exchange rate to additional adjustment if certain events ~~occur.~~had occurred.

NCLH, NCLC and the Private Investor also entered into an investor rights agreement dated May 28, 2020 (the “Investor Rights Agreement”), which ~~provides~~provided that, among other things, the Private Investor iswas entitled to nominate one person ~~who will be appointed~~for appointment to the board of directors of NCLH until the first date on which the Private Investor no longer beneficially ~~owns~~owned in the aggregate at least 50% of the number of NCLH’s ordinary shares issuable upon exchange of the Private Exchangeable Notes beneficially owned by the Private Investor in the aggregate as of May 28, 2020 (subject to certain adjustments).

The Investor Rights Agreement also ~~provides~~provided for customary registration rights for the Private Investor and its affiliates, including demand and piggyback registration rights, ~~contains~~contained customary transfer restrictions and ~~provides~~provided that the Private Investor and its affiliates ~~are~~were subject to a voting agreement with respect to certain matters during a specified period of time.

In a privately negotiated transaction among NCLH, NCLC and the Private Investor, NCLC agreed to repurchase all of the outstanding Private Exchangeable Notes for an aggregate repurchase price of approximately $1.0 billion (the “Repurchase”). On March 9, 2021, in connection with the settlement of the Repurchase, the trustee cancelled the aggregate principal amount outstanding under the Private Exchangeable Notes and confirmed that NCLC had satisfied and discharged its obligations under the Indenture. In connection with the Repurchase, we and the Private Investor agreed to terminate the Investor Rights Agreement effective upon the consummation of the Repurchase. Notwithstanding the termination, we and the Private Investor agreed that certain provisions related to indemnification and expense reimbursement would survive in accordance with their terms.

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

Cautionary Statement Concerning Forward-Looking Statements

Some of the statements, estimates or projections contained in this report are “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, actions taken or strategies being considered with respect to our liquidity position, valuation and appraisals of our assets and objectives of management for future operations (including those regarding expected fleet additions, our ~~voluntary~~ suspension of certain cruise voyages, our ability to weather the impacts of the COVID-19 pandemic, our expectations regarding the resumption of cruise voyages and the timing for such resumption of cruise voyages, the implementation of and effectiveness of our health and safety protocols, operational position, demand for voyages, financing opportunities and extensions, and future cost mitigation and cash conservation efforts and efforts to reduce operating expenses and capital expenditures) 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,” “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:

●

the spread of epidemics, pandemics and viral outbreaks and specifically, the COVID-19 pandemic, including its effect on the ability or desire of people to travel (including on cruises), which are expected to continue to adversely impact our results, operations, outlook, plans, goals, growth, reputation, cash flows, liquidity, demand for voyages and share price;

●

our ability to comply with the CDC’s ~~Framework for~~ Conditional ~~Sailing~~ Order and any additional or future regulatory restrictions on our operations and to otherwise develop enhanced health and safety protocols to adapt to the ~~current pandemic environment’s~~pandemic’s unique challenges once operations resume and to otherwise safely resume our operations when conditions allow;

●

legislation prohibiting companies from verifying vaccination status;

●

coordination and cooperation with the CDC, the federal government and global public health authorities to take precautions to protect the health, safety and security of guests, crew and the communities visited and the implementation of any such precautions;

●

our ability to work with lenders and others or otherwise pursue options to defer, renegotiate or refinance our existing debt profile, near-term debt amortization, newbuild related payments and other obligations and to work with credit card processors to satisfy current or potential future demands for collateral on cash advanced from customers relating to future cruises;

●

our ~~potential future~~ need for additional financing, which may not be available on favorable terms, or at all, and may be dilutive to existing shareholders;

●

our indebtedness and restrictions in the agreements governing our indebtedness that require us to maintain minimum levels of liquidity and otherwise limit our flexibility in operating our business, including the significant portion of assets that are collateral under these agreements;

●

the accuracy of any appraisals of our assets as a result of the impact of the COVID-19 pandemic or otherwise;

●

our success in reducing operating expenses and capital expenditures and the impact of any such reductions;

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●

our guests’ election to take cash refunds in lieu of future cruise credits or the continuation of any trends relating to such election;

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●

trends in, or changes to, future bookings and our ability to take future reservations and receive deposits related thereto;

●

the unavailability of ports of call;

●

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

●

adverse events impacting the security of travel, such as terrorist acts, armed conflict and threats thereof, acts of piracy, and other international events;

●

adverse incidents involving cruise ships;

●

adverse general economic and related factors, such as fluctuating or increasing levels of unemployment, underemployment and the volatility of fuel prices, declines in the securities and real estate markets, and perceptions of these conditions that decrease the level of disposable income of consumers or consumer confidence;

●

any further impairment of our trademarks, trade names or goodwill;

●

breaches in data security or other disturbances to our information technology and other networks or our actual or perceived failure to comply with requirements regarding data privacy and protection;

●

changes in fuel prices and the type of fuel we are permitted to use and/or other cruise operating costs;

●

mechanical malfunctions and repairs, delays in our shipbuilding program, maintenance and refurbishments and the consolidation of qualified shipyard facilities;

●

the risks and increased costs associated with operating internationally;

●

fluctuations in foreign currency exchange rates;

●

overcapacity in key markets or globally;

●

our expansion into and investments in new markets;

●

our inability to obtain adequate insurance coverage;

●

pending or threatened litigation, investigations and enforcement actions;

●

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

●

our inability to recruit or retain qualified personnel or the loss of key personnel or employee relations issues;

●

our reliance on third parties to provide hotel management services for certain ships and certain other services;

●

our inability to keep pace with developments in technology;

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●

changes involving the tax and environmental regulatory regimes in which we operate; and

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●

other factors set forth under “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on February ~~27, 2020, as updated by our Current Report on Form 8-K filed on July 8, 2020~~26, 2021 (“Annual Report on Form 10-K”).

Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 pandemic. It is not possible to predict or identify all such risks. There may be additional risks that we consider immaterial or which are unknown.

The above examples are not exhaustive and new risks 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.

Terminology

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

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

●

Acquisition of Prestige. In November 2014, 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 Net Cruise Cost Excluding Fuel. Net Cruise Cost Excluding Fuel adjusted for supplemental adjustments.

●

Adjusted Net ~~Income (Loss).~~Loss. Net ~~income (loss)~~loss adjusted for supplemental adjustments.

●

Allura Class Ships. Oceania Cruises’ two ships on order.

●

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

●

Breakaway Plus Class Ships. Norwegian Escape, Norwegian Joy, Norwegian Bliss and Norwegian Encore.

●

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

●

CDC. The U.S. Centers for Disease Control and Prevention.

●

Conditional Order. The CDC’s Framework for Conditional Sailing Order issued on October 30, 2020 that introduced a phased approach for the resumption of passenger cruises. These phases include: a) the establishment of laboratory testing of crew onboard cruise ships in U.S. waters; b) simulated voyages designed to test a cruise ship operator’s ability to mitigate COVID-19 on cruise ships; c) a certification process; and d) a return to passenger voyages in a manner that mitigates the risk of COVID-19 introduction, transmission or spread among passenger and crew onboard ships and ashore to communities. The Conditional Order replaced

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the CDC’s previously issued No Sail Order that expired on October 31, 2020 and will remain in effect until the earlier of a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, b) the CDC Director’s rescission or modification of the Conditional Order based on specific public health or other considerations, or c) November 1, 2021. Effective as of July 23, 2021, for cruise ships arriving in, within, or departing from a port in Florida, the Conditional Order only persists as a non-binding recommendation.

●

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 to eliminate the effects of 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.

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●

~~Epic Credit Facility~~~~. $675.0 million senior secured revolving credit facility.~~

●

Explorer Class Ships. Regent’s Seven Seas Explorer, Seven Seas Splendor, and an additional ship on order.

●

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

●

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

●

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

●

Jewel Credit Facility. The Credit Agreement, dated as of May 15, 2019 (as amended by Amendment No. 1 to the Credit Agreement, dated as of May 1, 2020, and as further amended by Amendment No. 2 to the Credit Agreement dated as of January 29, 2021), among NCLC, as borrower, the lenders party thereto, Bank of America, N.A., as administrative agent and collateral agent, Bank of America, N.A., Truist Bank (formerly known as Branch Banking and Trust Company), Fifth Third Bank and Mizuho Bank, Ltd., as joint bookrunners and arrangers, and Bank of America, N.A., Truist Bank (formerly known as Branch Banking and Trust Company), Fifth Third Bank and Mizuho Bank, Ltd., as co-documentation agents, providing for a $260.0 million senior secured credit facility.

●

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.

●

Occupancy Percentage. The ratio of Passenger Cruise Days to Capacity Days. A percentage greater than 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.

●

Pride of America Credit Facility. The Credit Agreement, dated as of January 10, 2019 (as amended by Amendment No. 1 to the Credit Agreement, dated as of April 28, 2020, and as further amended by Amendment No. 2 to the Credit Agreement, dated as of January 29, 2021), among NCLC, as borrower, the lenders party thereto, Nordea Bank Abp, New York Branch, as administrative agent and collateral agent, and Nordea Bank Abp, New York Branch, Mizuho Bank, Ltd., MUFG Bank, Ltd., and Skandinaviska Enskilda Banken AB (Publ), as joint bookrunners, arrangers and co-documentation agents, providing for a $230.0 million senior secured credit facility.

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●

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

●

Revolving Loan Facility. $875.0 million senior secured revolving credit facility.

●

SEC. U.S. Securities and Exchange Commission.

●

Senior Secured Credit Facility. The Credit Agreement, originally dated as of May 24, 2013, as amended and restated on October 31, 2014, June 6, 2016, October 10, 2017, January 2, 2019 and May 8, 2020, and as further amended on January 29, 2021 and March 25, 2021, by and among NCLC and Voyager Vessel Company, LLC, as co-borrowers, JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, and various lenders and agents, providing for a senior secured credit facility consisting of (i) the Revolving Loan Facility and (ii) the Term Loan A Facility.

●

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.

●

Term Loan A Facility. The senior secured term loan A facility having an outstanding principal amount of approximately $1.5 billion as of June 30, 2021.

Non-GAAP Financial Measures

We use certain non-GAAP financial measures, such as Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA and Adjusted Net ~~Income,~~Loss, to enable us to analyze our performance. See “Terminology” for the definitions of these and other non-GAAP financial measures. We utilize Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to manage our business on a day-to-day basis. In measuring our ability to control costs in a manner that positively impacts net income (loss), we believe changes in Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance. As a result of our voluntary suspension of sailings ~~during the second and third quarters of~~from March 2020 through June 2021, we did not have any Capacity ~~Days.~~Days during the suspension period. Accordingly, we have not presented herein per Capacity Day data for the three or ~~nine~~six months ended ~~September~~June 30, 2021 or June 30, 2020.

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.

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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 (loss), as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments and it includes other supplemental adjustments.

In addition, Adjusted Net ~~Income~~Loss is a non-GAAP financial measure that excludes certain amounts and is used to supplement GAAP net ~~income.~~loss. We use Adjusted Net ~~Income~~Loss as a key performance measure of our earnings performance. We believe that both management and investors benefit from referring to this non-GAAP financial measure in assessing our performance and when planning, forecasting and analyzing future periods. This non-GAAP financial measure also facilitates management’s internal comparison to our historical performance. The amounts excluded in the presentation of

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this non-GAAP financial measure may vary from period to period; accordingly, our presentation of Adjusted Net ~~Income~~Loss may not be indicative of future adjustments or results. For example, for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we incurred ~~$30.6 million~~$1.6 billion related to ~~the redeployment of Norwegian Joy from Asia to the U.S.~~impairment losses. We included this as an adjustment in the reconciliation of Adjusted Net ~~Income~~Loss since the expenses are not representative of our day-to-day operations; however, this adjustment did not occur and is not included in the comparative period presented within this Form 10-Q.

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.

Financial Presentation

We categorize revenue from our cruise and cruise-related activities as either “passenger ticket” revenue or “onboard and other” revenue. Passenger ticket revenue and onboard and other revenue vary according to 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; however, our cruise voyages were completely suspended ~~during the summer months of~~from March 2020 until July 2021 due to the COVID-19 pandemic. 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, beverage sales, shore excursions, specialty dining, retail sales, spa services and photo 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.

Our cruise operating expense is classified as follows:

●

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

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●

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. The cost of crew repatriation, including charters, housing, testing and other costs related to COVID-19 are also included.

●

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.

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Critical Accounting Policies

For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies” included in our Annual Report on Form 10-K under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have ~~updated~~made no significant changes to our critical accounting policies and estimates from those described in our Annual Report on Form ~~10-K as follows:~~10-K.

~~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 utilizing estimates, judgments and projections as necessary. Our estimate of fair value is generally measured by discounting expected future cash flows at discount rates commensurate with the associated risk.

We evaluate goodwill and trade names for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable. For our evaluation of goodwill 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. For trade names we also provide a qualitative assessment to determine if there is any indication of impairment.

~~In order to make this evaluation, we consider whether any of the following factors or conditions exist:~~

●

Changes in 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;

●

Changes in 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;~~

●

~~Decline in overall financial performance (for both actual and expected performance);~~

●

Entity and reporting unit specific negative 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

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●

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

We also may conduct a quantitative assessment comparing the fair value of each reporting unit to its carrying value, including goodwill. This is called the Step 1 Test which uses discounted future cash flows and other market data to determine the fair value of the reporting units. Our discounted cash flow valuation reflects our principal assumptions of 1) forecasted future operating results and growth rates, which have been prepared under multiple scenarios and are probability weighted, 2) forecasted capital expenditures for fleet growth and ship improvements and 3) a weighted average cost of capital of market participants. Historically, our Step 1 Test consisted of a combined approach using discounted future cash flows and market multiples to determine the fair value of the reporting units. However, for the March 31, 2020 Step 1 Test, the market multiples were used solely as a corroboratory approach given the impact of COVID-19 on the current year’s results, as of the valuation date, as well as prospective results including the lack of any guidance provided, which were not available for our peers. We believe that this approach is the most representative method to assess fair value as it utilizes expectations of long-term growth as well as current market conditions. For the trade names, we use the relief from royalty method, which uses the same forecasts and discount rates from the discounted cash flow valuation in the goodwill assessment along with a trade name royalty rate assumption.

We have concluded that our business has three reporting units. Each brand, Oceania Cruises, Regent Seven Seas Cruises and Norwegian, constitutes a business for which discrete financial information is available and management regularly reviews the operating results and, therefore, each brand is considered an operating segment.

~~During the nine months ended September 30,~~ 2020, we recognized a goodwill impairment loss of $1.3 billion. See Note 4- “Intangible Assets” for additional information. As of September 30, 2020, there was $98.1 million of goodwill for the Regent Seven Seas Cruises reporting unit after impairment. We also recognized an impairment loss for our Oceania Cruises and Regent Seven Seas Cruises trade names during the nine months ended September 30, 2020 in an aggregate amount of $317.0 million, with $500.5 million remaining as of September 30, 2020. We believe that we have made reasonable estimates and judgments. However, a change in our estimated future operating cash flows may result in a decline in fair value in future periods, which may result in a need to recognize additional impairment charges.

Update Regarding COVID-19 Pandemic

Suspension of Cruise Voyages

Due to the continued spread of COVID-19, ~~growing~~ongoing travel restrictions and limited access to ports around the world, in March 2020, we implemented a voluntary suspension of all cruise voyages across our three brands. The Company has announced its phased relaunch plans for all 28 ships across its three brands which began with Norwegian Jade on July 25, 2021 and continues through April 1, 2022. The first cruise to commence in the U.S. was on August 7, 2021 with Norwegian Encore sailing to Alaska from Seattle. The Company expects to have approximately 40% of capacity operating by September 30, 2021 and approximately 75% by December 31, 2021 with the full fleet expected to be back in operation by April 1, 2022. Certain sailings have been or may be cancelled in conjunction with the new voyage resumption plans for each vessel. As a result of ~~continued travel and port restrictions in certain geographies and in an effort to protect~~ the health, safety and security of guests, crew and communities visited, we subsequently extended this suspension several times, including most recently through December 31, 2020. Additionally, Regent has suspended its 2021 World Cruise along with voyages departing through April 2021 on one ship and voyages in Australia through February 2021, Oceania Cruises has cancelled its World Cruise through May 18, 2021 and voyages in Australia through February 2021, and Norwegian has cancelled all voyages aboard three of its ships through March 30, 2021. See Note 2 – “Summary of Significant Accounting Policies – Liquidity and Management’s Plan” for additional information. This is the first time we have completely suspended our cruise voyages, and as a result of these unprecedented circumstances caused by the pandemic, we are not able to predict the full impact of ~~such a suspension~~the pandemic on our Company. ~~The duration of any voluntary suspensions we have implemented and~~Refer to “Item 1A. Risk Factors” for further details regarding the ~~resumption of operations both inside and outside of the United States will be dependent, in part, on our ability to comply with the Conditional Order, the severity and duration of~~significant impact the COVID-19 pandemic ~~the lifting of various travel restrictions~~has had, and ~~travel bans issued by various countries~~is expected to continue to have, on our financial condition and ~~communities around the world, as well as the availability of ports.~~operations.

Preparation for the Safe Resumption of Operations

We have developed SailSAFE^TM, a comprehensive and multi-faceted health and safety strategy to enhance our already rigorous protocols and address the unique public health challenges posed by COVID-19. In July 2020, we announced a collaboration with Royal Caribbean Group to form a group of experts called the “Healthy Sail Panel” to guide the industry in the development of new and enhanced cruise health and safety standards. The panel is co-chaired by Dr. Scott Gottlieb, former commissioner of the U.S. Food and Drug Administration, and Governor Mike Leavitt, former

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Secretary of the U.S. Department of Health and Human Services, and consists of globally recognized experts from various disciplines, including public health, infectious disease, biosecurity, hospitality and maritime operations. On September 21, 2020, the expert panel published a report, which ~~includes 74~~included detailed best practices across five key areas of focus to protect the public health and safety of guests, crew and the communities where our cruise ships visit. The panel also submitted its recommendations to the CDC, in response to a CDC request for public comment to inform future public health guidance and preventative measures relating to travel on cruise ships. The panel’s recommendations ~~are informing~~have informed new detailed health and safety protocols for our return-to-service plan.

~~On October 30, 2020,~~The Company also further extended its depth and breadth of experts with the ~~CDC issued a Conditional Order that introduces a phased approach for the resumption~~formation of passenger cruises. These phases include: a) the establishment of laboratory testing of crew onboard cruise ships in U.S. waters; b) simulated voyages designed to test a cruise ship operator’s ability to mitigate COVID-19 on cruise ships; c) a certification process; and d) a return to passenger voyages in a manner that mitigates the risk of COVID-19 introduction, transmission or spread among passenger and crew onboard ships and ashore to communities. The Conditional Order replaces the CDC’s No Sail Order that expired on October 31, 2020 and will remain in effect until the earlier of a) the expiration of the Secretary ofits SailSAFE Global Health and ~~Human Services’ declaration that COVID-19 constitutes a~~Wellness Council, comprised of six experts at the forefront of their fields and led by Chairman Dr. Scott Gottlieb. The Council’s work complements the Healthy Sail Panel initiative and focuses on the implementation, compliance with and continuous improvement of health and safety protocols across the Company’s operations. The Company continues to work with its expert advisors, the Healthy Sail Panel, and global public health ~~emergency, b) the CDC Director rescinds or modifies the Conditional Order based on specific public~~authorities and government agencies to refine its comprehensive and multi-layered health ~~or other considerations, or c) November 1, 2021. While the Conditional Order is an important step on the path~~and safety strategy to ~~the safer~~enhance its already rigorous health and ~~healthier resumption of cruising~~safety standards in ~~the U.S., many uncertainties remain as~~response to ~~the specifics and timing of implementation, administration and costs of the requirements of the Conditional Order, some of which may be significant. Additionally, pursuant~~COVID-19.

Pursuant to the Conditional Order, the CDC has issued and may continue to issue additional requirements through technical instructions or orders as needed and the phases ~~described above~~of the Conditional Order may be subject to change based on public health considerations, including the trajectory of the pandemic and the ability of cruise ship operators to successfully employ measures that mitigate the risk of COVID-19. We have received conditional sailing certificates for certain ships and are ~~currently reviewing~~in the ~~requirements~~process of seeking certifications for the remaining ships in our fleet that will be operating out of the ~~Conditional Order,~~U.S. Additionally, in the U.S., certain states have enacted legislation prohibiting companies from verifying the vaccination status of guests. We challenged such a prohibition in Florida in court and received a preliminary injunction allowing us to operate as planned. As a result of these and other regulatory requirements and other logistical challenges,

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the timeline for our ability to return our entire fleet to cruises both in and outside of the U.S. is fluid. Nevertheless, we ~~will also~~ continue to work with ~~the CDC, the White House Coronavirus Task Force, and~~ other federal agencies, public health authorities and national and local governments in areas where we operate to take all necessary measures to protect our guests, crew and the communities visited ~~once operations resume. We have begun the planning process~~as we begin to ~~implement some of these recommendations, including purchasing related equipment and supplies.~~resume operations.

We ~~expect~~began a ~~gradual~~ phased relaunch of ~~our ships after~~cruise voyages in July 2021. Initially, ship occupancy will be limited to generally between 60% to 80% of capacity. During the ~~voyage suspension period, with our ships initially operating at reduced occupancy levels. The timing for bringing our ships back~~first two months of a ship’s return to service, ~~and percentage~~occupancy is expected to be incrementally increased until the ship reaches full capacity. By the end of 2021, we are planning for all ships to be ready to sail at full capacity. We plan to continue gradually launching ships from each brand through April 1, 2022. Refer to “Item 1A. Risk Factors” for further details regarding the uncertainties of returning to sailing at full fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, including further resurgences of COVID-19, our ability to comply with the Conditional Order, port availability, travel restrictions and advisories and our ability to re-staff our ships and implement new health and safety protocols.capacity.

Modified Policies

~~On or around March 6, 2020, the Company’s~~Our brands have launched new cancellation policies for certain sailings booked during certain time periods to permit ~~its~~our guests to cancel cruises which ~~are~~were not part of ~~the Company’s~~our temporary suspension of voyages up to ~~48 hours or~~ 15 days ~~depending on the brand,~~ prior to embarkation and receive a refund in the form of a credit to be applied toward a future cruise. These programs are currently in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through ~~specified time~~October 31, 2021. Certain cruises booked for certain periods, ~~depending on the brand.~~will be permitted a 60-day cancellation window for refunds. The future cruise ~~credit is~~credits issued under these programs are valid for any sailing through December 31, 2022, and ~~the Company~~we may extend ~~this offer.~~ the length of time these future cruise credits may be redeemed. The use of such credits may prevent us from garnering certain future cash collections as staterooms booked by guests with such credits will not be available for sale, resulting in less cash collected from bookings to new guests. ~~The Company~~We may incur incremental commission expense for the use of these future cruise credits.

In addition, to provide more flexibility to ~~its~~our guests, ~~the Company has~~we have also extended ~~its~~our modified final payment schedule for all voyages on Regent Seven Seas Cruises through ~~April~~September 30, 2021, on Oceania Cruises through October 31, 2021 and for specified future voyages, and for the majority of voyages on Norwegian Cruise Line through March 31, 2022, which now requires payment 60 days prior to embarkation versus the standard 120 days. ~~As a result of the change to our final payment schedule, the Norwegian Cruise Line brand now expects~~Our brands currently expect to provide cash refunds for cash bookings for future sailings we may cancel.

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Update on Bookings

~~While booking volumes~~Bookings continue to be strong for future periods despite reduced sales and marketing investments and a travel agency industry that has not been at full strength since the ~~emergence~~start of the ~~COVID-19 global pandemic have remained below historical levels, there continues~~pandemic. 2022 booking and pricing trends continue to be very positive driven by strong pent-up demand. The Company is experiencing robust future demand ~~for future cruise vacations, particularly beginning for sailings operating in~~across all brands with the ~~second half of 2021 and beyond, despite limited marketing efforts. Our~~ overall cumulative booked position for ~~the first half of 2021 remains below historical ranges as expected due to the current uncertain environment, however, for the second half of 2021 it is in line with historical ranges. Pricing for~~ full year ~~2021 is in line with pre-pandemic~~2022 meaningfully ahead of 2019’s record levels at higher pricing even ~~after~~when including the dilutive impact of future cruise credits. Our operations may be suspended beyond our announced suspensions and as a result, current booking data may not be informative. In addition, because of our updated cancellation policies, bookings may not be representative of actual cruise revenues.

The ongoing effects of COVID-19 on our operations and global bookings have had, and we believe they will continue to have, a significant impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of the pandemic. Significant events affecting travel, including COVID-19, typically have an impact on the demand for cruise vacations, with the full extent of the impact generally determined by the length of time the event influences travel decisions. Due to the unknown duration and extent of the COVID-19 pandemic, travel restrictions and advisories, uncertainties around our ability to comply with the Conditional Order, the potential unavailability of ports and/or destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, thereThere are remaining uncertainties about when our full fleet will be back in service at historical occupancy levels and, accordingly, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty; however, we will report a net loss ~~on both~~for the three months ending September 30, 2021 and expect to report a ~~GAAP and adjusted basis~~net loss until we are able to resume regular voyages, including for the year ending December 31, ~~2020.~~

~~Crew Repatriation~~

We2021. Refer to “Item 1A. Risk Factors” for further details regarding the significant impact the COVID-19 pandemic has had, and is expected to continue to have, ~~successfully completed the safe repatriation of the vast majority of~~on our ~~shipboard team members to their homes around the globe. We have repatriated shipboard team members, to over 120 countries, through a combination of chartered~~financial condition and ~~commercial air flights as well as the use of certain of our ships. We expect to re-staff a limited number of our ships in the near future as we prepare to resume cruise~~ operations.

Financing Transactions and Cost Containment Measures

~~Since March 2020,~~In 2021, we have ~~taken several~~continued to take actions to bolster our financial condition while our global cruise voyages are ~~currently suspended, including a series of~~disrupted. In March 2021, we received additional financing through various debt financings and NCLH’s equity ~~financing transactions completed~~offering, collectively totaling $2.7 billion in ~~May and July 2020.~~gross proceeds. From the proceeds, approximately $1.5 billion was used to extinguish debt. Refer to Note 6 – “Long-Term Debt” for further details about the above transactions.

●

In May 2020, NCLH and NCLC launched a series of capital markets transactions to raise approximately $2.0 billion. As a result of significant demand, including the full exercise of options to purchase additional ordinary shares and exchangeable notes, the total amount of gross proceeds increased to approximately $2.4 billion.

●

In July 2020, NCLH and NCLC launched a series of capital markets transactions to raise approximately $1.2 billion. As a result of significant demand, including the full exercise of the option to purchase additional ordinary shares and partial exercise of the option to purchase additional exchangeable notes, the total amount of gross proceeds increased to approximately $1.5 billion. From the proceeds, approximately $675 million was used to repay the Epic Credit Facility, which was terminated in July 2020.

We ~~have also undertaken~~undertook several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of the COVID-19 ~~through~~pandemic, including the reduction of capital expenditures ~~described under “Liquidity~~ and ~~Capital Resources” below~~deferral of debt amortization as

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well as a reduction in operating expenses, including ship operating expenses and selling, general and administrative expenses. Cost savings initiatives to reduce selling, general and administrative expenses, which had already been implemented ~~include~~at the beginning of 2021, included the significant reduction or deferral of marketing expenditures, the implementation of hiring freezes, a 20% salary or hours reduction for certain shoreside team members, a pause in ~~the Company’s~~our 401(k) matching contributions, ~~and~~ corporate travel freezes for shoreside ~~employees. Further,~~employees, and employee furloughs. Some of these cost savings initiatives have been discontinued as ~~part~~we begin our resumption of the Company’s ongoing strategy to improve its ability to sustain the long-term health of the business and to preserve financial flexibility during the COVID-19 crisis, the Company has furloughed certain shoreside employees through at least November 9, 2020, subject

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to change based on business needs. While on furlough, employees will not receive salary or hourly wages, but will continue to receive health benefit coverage if they currently participate in a Company sponsored plan.cruise voyages.

See “—Liquidity and Capital Resources” below for more information.

Quarterly Overview

Three months ended ~~September~~June 30, ~~2020~~2021 (“~~2020”~~2021”) compared to three months ended ~~September~~June 30, ~~2019~~2020 (“~~2019”~~2020”)

●

Total revenue decreased ~~99.7%~~74.2% to ~~$6.5~~$4.4 million compared to ~~$1.9 billion.~~$16.9 million.

●

Net ~~income (loss)~~loss was ~~$(758.2)~~$(867.5) million compared to ~~$455.3~~$(951.1) million.

●

Operating loss was ~~$(517.5)~~$(604.5) million compared to ~~operating income of $512.3~~$(594.5) million.

●

Adjusted Net Loss was ~~$(638.6)~~$(713.8) million in ~~2020,~~2021, which included ~~$119.6~~$153.8 million of adjustments primarily consisting of expenses related to ~~non-cash compensation and~~ losses ~~related~~on to our debt conversion options. Adjusted Net ~~Income~~Loss was ~~$486.2~~$(668.0) million in ~~2019,~~2020, which included ~~$30.9~~$283.1 million of adjustments primarily ~~consisting of expenses~~ related to ~~non-cash compensation.~~losses on to our debt conversion options.

●

Adjusted EBITDA decreased ~~145.1%~~3.7% to ~~$ (313.5)~~$(406.9) million compared to ~~$694.5~~$(392.2) million.

We refer you to our “Results of Operations” below for a calculation of Adjusted Net ~~Income (Loss)~~Loss and Adjusted EBITDA.

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Results of Operations

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

Three Months Ended

Nine Months Ended

September 30,

September 30,


2020

2019


2020

2019

Revenue

Passenger ticket

71.6
%
71.8
%

67.6
%
70.8
%
Onboard and other

28.4
%
28.2
%

32.4
%
29.2
%
Total revenue

100.0
%
100.0
%

100.0
%
100.0
%
Cruise operating expense





Commissions, transportation and other

62.0
%
17.3
%

29.2
%
17.2
%
Onboard and other

72.5
%
6.4
%

6.5
%
6.2
%
Payroll and related

1,006.0
%
12.3
%

34.8
%
13.8
%
Fuel

739.9
%
5.2
%

17.5
%
6.0
%
Food

52.6
%
3.0
%

4.7
%
3.3
%
Other

984.5
%
7.6
%

24.3
%
9.2
%
Total cruise operating expense

2,917.5
%
51.8
%

117.0
%
55.7
%
Other operating expense





Marketing, general and administrative

2,398.7
%
13.2
%

43.8
%
14.9
%
Depreciation and amortization

2,723.0
%
8.2
%

43.7
%
9.7
%
Impairment loss

—
%
—
%

126.6
%
—
%
Total other operating expense

5,121.7
%
21.4
%

214.1
%
24.6
%
Operating income (loss)

(7,939.2)
%
26.8
%

(231.1)
%
19.7
%
Non-operating income (expense)





Interest expense, net

(2,370.4)
%
(3.1)
%

(27.1)
%
(4.0)
%
Other income (expense), net

(1,365.5)
%
0.5
%

(25.6)
%
0.3
%
Total non-operating income (expense)

(3,735.9)
%
(2.6)
%

(52.7)
%
(3.7)
%
Net income (loss) before income taxes

(11,675.1)
%
24.2
%

(283.8)
%
16.0
%
Income tax benefit (expense)

43.4
%
(0.4)
%

1.1
%
0.4
%
Net income (loss)

(11,631.7)
%
23.8
%

(282.7)
%
16.4
%

~~The following table sets forth~~ selected statistical information:


	Three Months Ended			Nine Months Ended				Three Months Ended		Six Months Ended
	September 30,			September 30,				June 30,		June 30,
	2020	2019		2020		2019		2021	2020	2021	2020
Passengers carried	—	726,921		499,729		2,054,908		—	—	—	499,729
Passenger Cruise Days	—	5,387,662		4,278,602		15,377,185		—	—	—	4,278,602
Capacity Days	—	4,854,292		4,123,858		14,198,092		—	—	—	4,123,858
Occupancy Percentage		111.0	%	103.8	%	108.3	%				103.8	%

4136

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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)~~thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
			2020						2020						2021						2021
			Constant						Constant						Constant						Constant
	2020		Currency		2019		2020		Currency		2019		2021		Currency		2020		2021		Currency		2020
Total cruise operating expense	$	190,157	$	190,200	$	990,764	$	1,486,069	$	1,490,044	$	2,775,839	$	249,727	$	246,884	$	301,652	$	450,582	$	446,491	$	1,295,912
Marketing, general and administrative expense		156,351		155,599		254,535		556,820		556,873		742,857		184,901		183,242		130,562		387,967		384,616		400,469
Gross Cruise Cost		346,508		345,799		1,245,299		2,042,889		2,046,917		3,518,696		434,628		430,126		432,214		838,549		831,107		1,696,381
Less:
Commissions, transportation and other expense		4,038		4,032		330,893		371,007		372,499		857,848		6,564		6,374		34,601		15,597		15,355		366,969
Onboard and other expense		4,728		4,728		122,971		82,889		82,889		309,447		1,276		1,276		3,188		2,535		2,535		78,161
Net Cruise Cost		337,742		337,039		791,435		1,588,993		1,591,529		2,351,401		426,788		422,476		394,425		820,417		813,217		1,251,251
Less: Fuel expense		48,224		48,224		98,943		222,240		222,240		297,727		54,090		54,090		48,992		96,693		96,693		174,016
Net Cruise Cost Excluding Fuel		289,518		288,815		692,492		1,366,753		1,369,289		2,053,674		372,698		368,386		345,433		723,724		716,524		1,077,235
Less Non-GAAP Adjustments:
Non-cash deferred compensation (1)		667		667		533		1,999		1,999		1,601		905		905		666		1,810		1,810		1,332
Non-cash share-based compensation (2)		25,862		25,862		25,420		81,009		81,009		82,070		22,451		22,451		22,389		49,052		49,052		55,147
Redeployment of Norwegian Joy (3)		—		—		—		—		—		7,051
Adjusted Net Cruise Cost Excluding Fuel	$	262,989	$	262,286	$	666,539	$	1,283,745	$	1,286,281	$	1,962,952	$	349,342	$	345,030	$	322,378	$	672,862	$	665,662	$	1,020,756
Capacity Days		—		—		4,854,292		4,123,858		4,123,858		14,198,092
Gross Cruise Cost per Capacity Day					$	256.54					$	247.83
Net Cruise Cost per Capacity Day					$	163.04					$	165.61
Net Cruise Cost Excluding Fuel per Capacity Day					$	142.66					$	144.64
Adjusted Net Cruise Cost Excluding Fuel per Capacity Day					$	137.31					$	138.25

(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 the redeployment of Norwegian Joy from Asia to the U.S. and the closing of the Shanghai office, which are included in other cruise operating expense and marketing, general and administrative expense.

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Adjusted Net ~~Income (Loss)~~Loss was calculated as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net income (loss)	$	(758,152)	$	455,309	$	(3,591,483)	$	817,989
Net loss									$	(867,524)	$	(951,065)	$	(2,189,986)	$	(2,833,331)
Non-GAAP Adjustments:
Non-cash deferred compensation (1)		992		878		2,975		2,636		1,004		992		2,007		1,983
Non-cash share-based compensation (2)		25,862		25,420		81,009		82,070		22,451		22,389		49,052		55,147
Extinguishment and modification of debt (3)		6,636		—		27,795		7,268		—		21,159		289,190		21,159
Amortization of intangible assets (4)		2,774		4,603		8,321		13,809		—		2,773		—		5,547
Redeployment of Norwegian Joy (5)		—		—		—		30,629
Impairment loss (6)		—		—		1,633,337		—
Debt conversion option, discount and expenses (7)		83,296		—		318,908		—
Adjusted Net Income (Loss)	$	(638,592)	$	486,210	$	(1,519,138)	$	954,401
Impairment loss (5)										—		175		—		1,633,337
Debt conversion option, discount and expenses (6)										130,311		235,612		468,605		235,612
Adjusted Net Loss									$	(713,758)	$	(667,965)	$	(1,381,132)	$	(880,546)

(1)	Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related 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)	Losses on extinguishment of debt and modification of debt are included in interest expense, net.

(4)	Amortization of intangible assets related to the Acquisition of Prestige, which are included in depreciation and amortization expense.

(5)	Expenses related to the redeployment of Norwegian Joy from Asia to the U.S. and the closing of the Shanghai office, which are included in other cruise operating expense, marketing, general and administrative expense and depreciation and amortization expense.

~~(6)~~

Impairment loss consists of goodwill, trade name and property and equipment impairments. The impairments of goodwill and trade names are included in impairment loss and the impairment of property and equipment is included in depreciation and amortization expense.

~~(7)~~(6)

Consists of non-cash gains and losses related to our debt conversion options, ~~as well as the associated financing costs,~~ which are recognized in other income (expense), net. Also includes the related debt discount, which is amortized to interest expense, net.

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net income (loss)	$	(758,152)	$	455,309	$	(3,591,483)	$	817,989
Net loss									$	(867,524)	$	(951,065)	$	(2,189,986)	$	(2,833,331)
Interest expense, net		154,501		60,188		343,993		199,660		179,448		120,585		639,780		189,492
Income tax (benefit) expense		(2,832)		7,091		(13,216)		(23,381)		927		(6,287)		2,655		(10,384)
Depreciation and amortization expense		177,488		156,215		554,937		482,227		174,262		179,252		344,578		377,449
EBITDA		(428,995)		678,803		(2,705,769)		1,476,495		(512,887)		(657,515)		(1,202,973)		(2,276,774)
Other (income) expense, net (1)		89,005		(10,251)		325,412		(13,433)		82,627		242,230		371,892		236,407
Non-GAAP Adjustments:
Other Non-GAAP Adjustments:
Non-cash deferred compensation (2)		667		533		1,999		1,601		905		666		1,810		1,332
Non-cash share-based compensation (3)		25,862		25,420		81,009		82,070		22,451		22,389		49,052		55,147
Redeployment of Norwegian Joy (4)		—		—		—		7,051
Impairment loss (5)		—		—		1,607,797		—
Impairment loss (4)										—		—		—		1,607,797
Adjusted EBITDA	$	(313,461)	$	694,505	$	(689,552)	$	1,553,784	$	(406,904)	$	(392,230)	$	(780,219)	$	(376,091)

(1)	Primarily consists of ~~gains and~~ losses ~~net for proceeds~~ from ~~insurance, a litigation settlement and foreign currency exchanges.~~conversion options on our exchangeable notes.

(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 the redeployment of Norwegian Joy from Asia to the U.S. and the closing of the Shanghai office, which are included in other cruise operating expense and marketing, general and administrative expense.

~~(5)~~

Impairment loss consists of goodwill and trade name impairments.

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Three months ended ~~September~~June 30, ~~2020~~2021 (“~~2020”~~2021”) compared to three months ended ~~September~~June 30, ~~2019~~2020 (“~~2019”~~2020”)

Revenue

Total revenue decreased ~~99.7%~~74.2% to ~~$6.5~~$4.4 million in ~~2020~~2021 compared to ~~$1.9 billion~~$16.9 million in ~~2019.~~2020. In 2021 and 2020, our total revenue was insignificant. The adverse impact on revenue was due to the cancellation of sailings inbeginning March 13, 2020 as a result of the COVID-19 pandemic.~~All guests were disembarked from the 28 ships in the Company’s fleet by March 28, 2020.~~

Expense

Total cruise operating expense decreased ~~80.8%~~17.2% in ~~2020~~2021 compared to ~~2019.~~2020. In ~~2020,~~2021, our cruise operating expenses were primarily related to crew costs, including salaries, food and other ~~repatriation~~travel costs; fuel; and other ongoing costs such as insurance and ship maintenance. ~~The Company has repatriated the vast majority of its crew. To repatriate crew as soon as possible, the Company has leveraged certain ships~~Additionally, in ~~its fleet~~2020, our cruise operating expenses were increased due to ~~assist~~costs associated with the suspension of cruise voyages, including the cost of crew repatriation ~~efforts along with utilizing scheduled chartered flights.~~and the continued payment of protected commissions. Gross Cruise Cost increased 0.6% in 2021 compared to 2020 primarily related to the decrease in costs described above offset by an increase in marketing, general and administrative expenses as we prepare to return to sailing. Total other operating expense increased 15.9% in 2021 compared to 2020 primarily due to the increase in marketing, general and administrative costs as a result of increased advertising costs as well as an increase in salaries and benefits as we return to a more normalized cost structure.

Interest expense, net was $179.4 million in 2021 compared to $120.6 million in 2020. The increase in interest expense reflects additional debt outstanding at higher interest rates, partially offset by lower LIBOR. Also, included in 2020 were losses on extinguishment of debt and debt modification costs of $21.2 million.

Other income (expense), net was expense of $82.6 million in 2021 compared to $242.2 million in 2020. The expenses were primarily due to losses from conversion options on our exchangeable notes.

Six months ended June 30, 2021 (“2021”) compared to six months ended June 30, 2020 (“2020”)

Revenue

Total revenue decreased 99.4% to $7.5 million in 2021 compared to $1.3 billion in 2020. In 2020, voyages were cancelled beginning March 13, 2020. In 2021, our total revenue was insignificant. The adverse impact on revenue was due to the cancellation of sailings in 2021 as a result of the COVID-19 pandemic.

Expense

Total cruise operating expense decreased 65.2% in 2021 compared to 2020. In 2021, our cruise operating expenses were primarily related to crew costs, including salaries, food and other travel costs; fuel; and other ongoing costs such as insurance and ship maintenance. In 2020, our cruise operating expenses subsequent to the suspension of cruise voyages on March 13, 2020 primarily included the cost of protected commissions and crew costs, including salaries, food and other repatriation costs. Gross Cruise Cost decreased ~~72.2%~~50.6% in ~~2020~~2021 compared to ~~2019~~2020 primarily related to the change in costs described above in addition to a decrease in marketing, general and administrative expenses from cost savings initiatives in connection with the COVID-19 pandemic and as described under “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures.” Total other operating expense decreased ~~18.7%~~69.3% in ~~2020~~2021 compared to ~~2019~~2020 primarily due to the ~~cost savings described above~~impairment of goodwill and trade names triggered by the COVID-19 pandemic in ~~marketing, general and administrative expenses offset by an increase in depreciation and amortization expense.~~2020. Depreciation and amortization expense ~~increased~~decreased primarily due to ~~the delivery of Norwegian Encore~~a $25.5 million impairment loss recognized in ~~the fourth quarter of 2019 and Seven Seas Splendor in the first quarter of 2020 as well as ship improvement projects.~~2020.

Interest expense, net was ~~$154.5~~$639.8 million in ~~2020~~2021 compared to ~~$60.2~~$189.5 million in ~~2019.~~2020. The ~~change~~increase in interest expense ~~is driven by additional debt outstanding at higher rates, partially offset by lower LIBOR. Included in 2020 were~~reflects losses on extinguishment of debt and debt modification costs of ~~$6.6 million.~~$289.2 million primarily related to the repurchase of the Private Exchangeable Notes as well as additional debt outstanding at higher interest rates, partially offset by lower LIBOR.

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Other income (expense), net was expense of ~~$89.0~~$371.9 million in ~~2020~~2021 compared to ~~income of $10.3~~$236.4 million in ~~2019. In 2020, the expense was~~2020. The expenses were primarily due to losses from conversion options on our exchangeable notes.

~~In 2020, we had an income tax benefit of $2.8 million compared to expense of $7.1 million in 2019. In 2020, the tax benefit is due to operating losses.~~

~~Nine months ended September 30, 2020 (“2020”) compared to nine months ended September 30, 2019 (“2019”)~~

~~Revenue~~

Total revenue decreased 74.5% to $1.3 billion in 2020 compared to $5.0 billion in 2019. The adverse impact on revenue was due to the cancellation of sailings in 2020 as a result of the COVID-19 pandemic, which resulted in a 71.0% decrease in Capacity Days. All guests were disembarked from the 28 ships in the Company’s fleet by March 28, 2020.

~~Expense~~

Total cruise operating expense decreased 46.5% in 2020 compared to 2019. In 2020, our expenses subsequent to the suspension of cruise voyages primarily includes the cost of protected commissions and crew costs as discussed above. Additionally, during the first quarter of 2020, there was a notable increase from 2019 in fuel expense associated with the International Maritime Organization’s 2020 regulations, and cruise operating expense increased due to the addition of Norwegian Encore and Seven Seas Splendor to the fleet. Gross Cruise Cost decreased 41.9% in 2020 compared to 2019 primarily due to the changes in cruise operating costs described above in addition to a decrease in marketing, general and administrative expenses, which is primarily due to the cost reductions in marketing and salaries described above. Total other operating expense increased 122.0% in 2020 compared to 2019 primarily due to the impairment of goodwill and trade names triggered by the COVID-19 pandemic. Depreciation and amortization expense increased primarily due to the delivery of Norwegian Encore in the fourth quarter of 2019 and Seven Seas Splendor in the first quarter of 2020 as well as ship improvement projects.

Interest expense, net was $344.0 million in 2020 compared to $199.7 million in 2019. The change in interest expense is driven by additional debt outstanding at higher interest rates, partially offset by lower LIBOR. Included in 2020 were losses on extinguishment of debt and debt modification costs of $27.8 million compared to $7.3 million in 2019.

Other income (expense), net was expense of $325.4 million in 2020 compared to income of $13.4 million in 2019. In 2020, the expense was primarily due to losses from conversion options on our exchangeable notes. In 2019, the income was primarily due to gains from insurance proceeds and a litigation settlement and foreign currency exchange gains.

In 2020, we had an income tax benefit of $13.2 million compared to $23.4 million in 2019. In 2020, the tax benefit is due to operating losses and the reversal of a valuation allowance. During 2018, we implemented certain tax restructuring strategies that created our ability to utilize the net operating loss carryforwards of Prestige, for which we had previously provided a full valuation allowance. As a result, we recorded a tax benefit of $35.7 million in connection with the reversal of substantially all of the valuation allowance in 2019.

Liquidity and Capital Resources

General

As of ~~September~~June 30, ~~2020,~~2021, our liquidity was ~~$2.4~~$2.7 billion consisting of cash and cash equivalents.

In January 2021, we amended our Senior Secured Credit Facility to further defer certain amortization payments due prior to June 30, 2022 and to waive certain financial and other covenants through December 31, 2022. In connection with such amendment, our minimum liquidity requirement was increased to $200 million and such requirement applies through December 31, 2022.

~~Since~~

In addition, in February 2021, we amended certain of our export-credit backed facilities to defer amortization payments aggregating approximately $680 million through March ~~2020, we have taken several actions~~31, 2022. We also amended all of our export-credit backed facilities to ~~bolster our~~provide that, from the effective date of the amendments to and including December 31, 2022, certain of the financial ~~condition while our global cruise voyages are suspended.~~ covenants under such facilities will be suspended and the free liquidity test will be replaced by a covenant to maintain at least $200 million in free liquidity. The amendments also made certain other changes to the facilities, including imposing further restrictions on NCLC’s ability to incur debt, create security, issue equity and make dividends and other distributions.

In March ~~2020, NCLC borrowed~~2021, the full amount of $1.55 billion under its $875 million Revolving Loan Facility and its $675 million Epic Credit Facility, dated as of March 5, 2020. We have taken additional measures to improve our liquidity by refinancing existing debt amortization, including under our agreements with export credit agencies and related governments, and extending the maturities and refinancing amortization under other agreements, which has resulted in approximately $1.6 billion of payment deferrals. See Note 8 – “Long-Term Debt” for further

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~~information. Through September 30, 2020, the NCLH and NCLC~~Company received additional financing through various debt financings and NCLH’s equity ~~offerings in May and July 2020~~offering, collectively totaling ~~$3.9~~$2.7 billion in gross proceeds. The Pride of America Credit Facility and Jewel Credit Facility were extinguished from proceeds of the debt financings. We also extinguished the Private Exchangeable Notes in March 2021 by using approximately $1.0 billion of cash proceeds from NCLH’s equity offering completed in March 2021 to repurchase the notes. See Note 86 – “Long-Term Debt” for further ~~information on~~information.

In July 2021, we amended nine credit facilities for our newbuild agreements and increased the ~~debt financings. The equity offerings, which were recognized as capital contributions~~combined commitments under such credit facilities by approximately $770 million to ~~NCLC, resulted in 60,984,848 NCLH shares being issued in exchange~~cover owner’s supply (generally consists of provisions for ~~gross proceeds of $747.5 million.~~the ship), modifications and financing premiums.

The Company has also undertaken several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of the COVID-19 pandemic, through the reduction of capital expenditures and operating expenses, including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension, resulting in lower crew payroll expense. See ~~“—Update~~“Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures” above for further information.

~~After giving effect to the debt deferrals and cash conservation measures implemented, including the loans for and deferral of near-term newbuild related payments, the Company’s~~The Company's monthly average cash burn ~~rate~~ for the second quarter 2021 was approximately $200 million, higher than prior guidance of approximately $190 million and above the prior quarter, as it prepared for a return to service this summer. Return to service expenses are primarily related to repositioning, provisioning and staffing of vessels, implementing new health and safety protocols and a measured ramp up of demand generating marketing investments. Looking ahead, we expect third quarter ~~2020 was approximately $150 million. For comparative purposes, assuming vessels remain at minimum manning status, fourth quarter 2020~~2021 monthly average cash burn ~~rate would be higher at~~to increase to approximately ~~$175~~$285 million ~~per month, primarily~~ driven by the ~~timing~~continued phased relaunch of ~~interest expense. For the second half of 2020, this would result in an average monthly cash~~additional vessels.

Cash burn ~~rate of approximately $160 million, in line with the Company’s previously disclosed target rate during voyage suspensions. This cash burn rate and estimate includes~~rates include ongoing ship operating expenses, administrative operating expenses, interest expense, taxes, debt deferral fees and expected non-newbuild capital expenditures and ~~excludes~~exclude cash refunds of customer deposits as well as cash inflows from new and existing bookings, newbuild related capital expenditures and other working capital ~~changes, voyage resumption preparation costs and~~changes. Future cash burn rate estimates also exclude unforeseen expenses. ~~This~~The second quarter 2021 cash burn rate and third quarter estimate also ~~reflects~~reflect the deferral of debt amortization and newbuild related ~~payments through March 31, 2021. Due~~payments.

We continue to ~~the fluidity~~expect a gradual phased relaunch of ~~the voyage resumption schedule and associated expenses, the Company estimates its actual cash burn rate~~our ships, with our ships initially operating at reduced occupancy levels as described in “Update Regarding COVID-19 Pandemic— Preparation for the ~~fourth quarter 2020 will be higher than~~Safe Resumption of Operations.” Refer to “Item 1A. Risk Factors” for further details regarding the ~~comparative number referenced above. Average monthly cash burn~~significant impact the COVID-19 pandemic has had,

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and is expected to ~~increase as vessels~~continue to have, on our financial condition and operations. The estimation of our future cash flow projections includes numerous assumptions that are ~~prepared~~subject to ~~return~~various risks and uncertainties. Refer to ~~service due to additional costs associated with re-staffing, re-positioning~~Note 2 – “Summary of Significant Accounting Policies” for further information on liquidity and ~~provisioning of vessels, implementation of new health and safety protocols and a disciplined ramp-up of demand-generating marketing investments.~~management’s plan.

There can be no assurance that the accuracy of the assumptions used to estimate our liquidity requirements will be correct, and our ability to be predictive is uncertain due to the unknown magnitude and duration of the COVID-19 global pandemic. The liquidity analysis reflects management’s principal assumptions related to (i) the Company’s ability to operate and redeployment of the fleet not currently in service, (ii) forecasted cash collections for future voyages and (iii) forecasted liquidity requirements for ongoing operations. Based on the liquidity ~~needs described above~~estimates and our current resources, ~~the Company has~~we have concluded we have sufficient liquidity to satisfy our obligations ~~over~~for at least the next twelve ~~months~~months. Nonetheless, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future if we are unable to resume our cruise voyages on the schedule expected, and ~~maintain minimum levels of liquidity as required by certain~~particularly if a substantial portion of our ~~debt agreements.~~fleet continues to have suspended cruise voyages for a prolonged period.

We have received certain financial and other debt covenant waivers through December 31, 2022 and added new free liquidity requirements. At ~~September~~June 30, ~~2020,~~2021, taking into account such waivers, we were in compliance with all of our debt covenants. As part of the Hermes debt holiday and the Supplemental Agreements we have obtained lender consents to waive compliance with financial covenants for a deferral period from April 1, 2020 to March 31, 2021. If we do not continue to remain in compliance with our covenants, we would have to seek to amend the covenants. However, no assurances can be made that such amendments would be approved by our lenders. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which ~~could~~would have a material adverse impact to our operations and liquidity.

Since March 2020, Moody’s has downgraded ~~the~~our long-term issuer rating ~~of NCLC~~ to B2, ~~its~~our senior secured rating to B1 and ~~its~~our senior unsecured rating to Caa1. Since April 2020, S&P Global has downgraded ~~the~~our issuer credit rating ~~of NCLC~~ to ~~B+,~~B, lowered ~~its issuer-level~~our issue-level rating on ~~NCLC’s~~our $875 million ~~senior secured revolving loan facility~~Revolving Loan Facility and $1.5 billion ~~term loan~~Term Loan A Facility to ~~BB, its issuer-level~~BB-, our issue-level rating on ~~NCLC’s~~our $675 million ~~senior secured notes due~~ 2024 Senior Secured Notes and $750 million ~~senior secured notes due~~ 2026 Senior Secured Notes to ~~BB-~~B+ and ~~its~~our senior unsecured rating to B.B-. If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt or equity financing will be further negatively impacted. ~~There~~We also have significant capacity to incur additional indebtedness under our debt agreements. On May 20, 2021, NCLH’s shareholders authorized a 490,000,000 increase in the number of ordinary shares available for issuance. However, there is no guarantee that debt or equity financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations.

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As of ~~September~~June 30, ~~2020, the Company has~~2021, we had advance ticket sales of ~~$1.2~~$1.4 billion, including the long-term portion, which ~~includes~~included approximately ~~$0.85~~$0.8 billion of future cruise credits. ~~The Company~~We also ~~has~~have agreements with ~~its~~our credit card processors that, ~~govern~~as of June 30, 2021, governed approximately ~~$1.0~~$1.2 billion ~~at September 30, 2020~~ in advance ticket sales that ~~have~~had been received by the Company relating to future voyages. These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, that the Company maintain a reserve which ~~could~~would be satisfied by posting collateral. ~~Currently, we have had approximately $40 million of advanced ticket deposits withheld to satisfy~~Although the agreements vary, these requirements ~~and have provided~~may generally be satisfied either through a ~~reserve consisting~~percentage of ~~$70 million of cash. We have also discussed~~customer payments withheld or providing second priority liens on certain ships with a collective equity value of approximately $700 million based on appraisals as of December 31, 2019. Until these discussions are finalized, a significant portion of incoming advance ticket deposits are being withheld and will be released upon satisfactory perfection ofcash funds directly to the ~~liens. These discussions are ongoing, and any~~card processor. Any cash reserve or collateral requested could be increased or decreased. If

As of June 30, 2021, we dohad a reserve of approximately $800 million with a credit card processor recognized in accounts receivable, net or other long-term assets. Additionally, we are required to fund all refunds until further notice and 100% of incoming advance ticket sales deposits with this credit card processor will be withheld and are not ~~meet an agreed upon minimum liquidity in~~expected to be released until the ~~future, we~~credit card processor’s exposure is fully collateralized. As of June 30, 2021, the exposure was approximately $940 million. The reserve shortfall of approximately $140 million will decrease as refunds are funded, cruises are provided and amounts withheld by the credit card processor are allocated to the reserve rather than remitted to the Company. We may be required to pledge additional collateral and/or post cash reserves or take other actions that may further reduce our liquidity.

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Sources and Uses of Cash

In this section, references to “2021” refer to the six months ended June 30, 2021 and references to “2020” refer to the ~~nine~~six months ended ~~September~~June 30, ~~2020 and references to “2019” refer to the nine months ended September 30, 2019.~~2020.

Net cash used in operating activities was ~~$1.9~~$1.5 billion in ~~2020~~2021 as compared to net cash ~~provided by~~used in operating activities of ~~$1.5~~$1.3 billion in ~~2019.~~2020. The net cash used in operating activities included timing differences in cash receipts and payments relating to operating assets and liabilities. Advance ticket sales ~~decreased~~increased by ~~$834.6~~$191.6 million in 2021 compared to a decrease of $844.2 million in 2020 while our accounts receivable, net and prepaid expenses and other assets, which contain our reserves with credit card processors, decreased cash by $408.1 million and $242.6 million, respectively, compared to ~~an increase~~a decrease of ~~$262.9~~$2.1 million and $111.5 million, respectively, in ~~2019.~~2020.

Net cash used in investing activities was ~~$0.9 billion~~$315.2 million in 2021 and $751.6 million in 2020, ~~and $0.6 billion in 2019,~~ primarily related to newbuild payments in 2021 and payments for Seven Seas Splendor and ship improvement ~~projects.~~projects in 2020.

Net cash provided by financing activities was ~~$4.9~~$1.2 billion in 2021 primarily due to the proceeds of $2.7 billion from our various notes and a contribution from NCLH’s equity offering partially offset by debt repayments and a related redemption premium associated with extinguishment of the Private Exchangeable Notes. Net cash provided by financing activities was $4.1 billion in 2020 primarily due to the proceeds of ~~$5.2~~$4.0 billion from our revolving credit facilities, various notes, and newbuild loans partially offset by debt repayments. Additionally, we received a contribution of ~~$741.8~~$464.5 million from NCLH. Net cash used in financing activities was $610.3 million in 2019 primarily due to a dividend to NCLH of $341.0 million, net repayments of our Revolving Loan Facility and the net refinancing of term loans partially offset by the issuance of new debt.

Future Capital Commitments

Future capital commitments consist of contracted commitments, including ship construction contracts. Anticipated expenditures related to ship construction contracts and future expected capital expenditures necessary for operations as well as our ship refurbishment projects. Our anticipated capital expenditures, including capitalized interest and additional health and safety investments, are approximately $150 millionwere $0.3 billion for the remainder of ~~2020.~~2021 and $1.6 billion and $2.5 billion for the years ending December 31, 2022 and 2023, respectively. The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of $0.2 billion for the remainder of 2021 and $1.0 billion and $2.0 billion for the years ending December 31, 2022 and 2023, respectively. Future expected capital expenditures will significantly increase our depreciation and amortization expense.

Project Leonardo will introduce an additional six ships, each ranging from approximately 140,000 to 156,300 Gross Tons with approximately ~~3,300~~3,215 to 3,550 Berths, with expected delivery dates from 2022 through 2027. For the Regent brand, we have an order for one Explorer Class Ship to be delivered in 2023, which will be approximately 55,000 Gross Tons and 750 Berths. For the Oceania Cruises brand, we have orders for two Allura Class Ships to be delivered in 2023 and 2025. Each of the Allura Class Ships will be approximately 67,000 Gross Tons and 1,200 Berths. The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged.

The combined contract prices of the nine ships on order for delivery was approximately ~~€7.1~~€7.6 billion, or ~~$8.3~~$9.0 billion based on the euro/U.S. dollar exchange rate as of ~~September~~June 30, ~~2020.~~2021. We have obtained export credit financing which is expected to fund approximately 80% of the contract price of each ship, subject to certain conditions. We do not anticipate any contractual breaches or cancellations to occur. However, if any such events were to occur, it could result

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in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.

Capitalized interest for the three months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$6.8~~$9.9 million and ~~$8.9~~$5.6 million, respectively, and for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$18.1~~$18.0 million and ~~$25.3~~$11.3 million, respectively, primarily associated with the construction of our newbuild ships.

Off-Balance Sheet Arrangements

None.

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Contractual Obligations

As of ~~September~~June 30, ~~2020~~2021, our contractual obligations with initial or remaining terms in excess of one year, including interest payments on long-term debt obligations, included the following (in thousands):


			Less than						More than				Less than						More than
	Total		1 year		1-3 years		3-5 years		5 years		Total		1 year		1-3 years		3-5 years		5 years
Long-term debt (1)	$	11,286,370	$	472,298	$	1,951,074	$	5,915,135	$	2,947,863	$	12,492,674	$	361,189	$	5,559,953	$	4,448,294	$	2,123,238
Operating leases (2)		245,776		31,483		62,947		63,564		87,782		225,414		29,674		63,837		62,971		68,932
Ship construction contracts (3)		8,191,786		363,899		2,740,307		3,230,411		1,857,169		8,749,304		221,170		3,888,840		2,826,579		1,812,715
Port facilities (4)		2,068,851		71,662		143,020		149,174		1,704,995		2,031,604		72,203		142,445		139,686		1,677,270
Interest (5)		2,000,783		436,246		797,770		510,270		256,497		2,429,143		565,867		1,042,441		578,552		242,283
Other (6)		1,218,957		296,501		459,997		410,001		52,458		1,028,162		279,624		437,996		307,960		2,582
Total ~~(7)~~	$	25,012,523	$	1,672,089	$	6,155,115	$	10,278,555	$	6,906,764	$	26,956,301	$	1,529,727	$	11,135,512	$	8,364,042	$	5,927,020

(1)	Long-term debt excludes discounts, premiums, deferred financing fees and conversion options, which are a direct addition or deduction from the carrying value of the related debt liability in the consolidated balance sheets.

(2)	Operating leases are primarily for ~~offices, motor vehicles~~port facilities and ~~office equipment.~~offices.

(3)

Ship construction contracts are for our newbuild ships based on the euro/U.S. dollar exchange rate as of ~~September~~June 30, ~~2020.~~2021. Export credit financing is in place from syndicates of banks. Approximately ~~$232.8~~$196.2 million of the ship construction contracts due in less than one year are financed under export credit or other newbuild related financing. ~~The amount includes the two Project Leonardo ships and one Allura Class Ship which became effective.~~

(4)

Port facilities represent our usage of certain port facilities. Our port facilities agreements include force majeure provisions that may alleviate an unspecified amount of obligations under minimum guarantees during the COVID-19 pandemic. In March 2020, the Company provided the required notice that such provisions were being enacted. Customary practice is to prorate these obligations for the annual period impacted. A portion of our port fees may be waived as a result of these provisions, including those ports that are presented within operating leases in the table above.

(5)	Interest includes fixed and variable rates with LIBOR held constant as of ~~September~~June 30, ~~2020.~~2021.

(6)

Other includes future commitments for service, maintenance and other business enhancement capital expenditures contracts. Certain contracts contain provisions which provide for reduced obligations in the case of a ship(s) removed from operations. As a result, we may only be required to cover reasonable costs during the time period whereby our operations have temporarily been suspended. These reasonable costs are ~~currently being negotiated.~~subject to ongoing negotiations.

~~(7)~~

$1.1 million of unrecognized tax benefits were excluded from the “Total” contractual obligations as of September 30, 2020 because an estimate of the timing of future tax settlements cannot be reasonably determined.

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

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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, and 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~~have received certain financial and other debt covenant waivers through December 31, 2022 and added new free liquidity requirements. At June 30, 2021, taking into account such waivers, we were in compliance with ~~these covenants as~~all of ~~September 30, 2020.~~our debt covenants.

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In addition, our existing debt agreements restrict, and any of our future debt arrangements may restrict, among other things, the ability of NCLC to make distributions and/or pay dividends to NCLH and NCLH’s ability to pay cash dividends to its shareholders. NCLH is a holding company and depends upon its subsidiaries for their ability to pay distributions 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.

In light of the measures described under "Update Regarding COVID-19 --Pandemic — Financing Transactions and Cost Containment Measures", we believe our cash on hand, expected future operating cash inflows 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 12-month period. Certain debt covenant waivers were received in 2021 to enable the Company to maintain this compliance. Refer to “—Liquidity and Capital Resources” for further information regarding the debt covenant waivers. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations. Furthermore, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future if we are unable to resume our cruise voyages on the schedule expected, and particularly if a substantial portion of our fleet continues to have suspended cruise voyages for a prolonged period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

General

Interest Rate Risk

As of ~~September~~June 30, ~~2020,~~2021, we had interest rate swap and collar agreements to hedge our exposure to interest rate movements and to manage our interest expense. As of ~~September~~June 30, ~~2020, 73%~~2021, 76% of our debt was fixed and ~~27%~~24% was variable, which includes the effects of the interest rate swaps and collars. The notional amount of outstanding debt associated with the interest rate derivative agreements as of ~~September~~June 30, ~~2020~~2021 was ~~$0.7~~$0.6 billion. As of December 31, ~~2019, 78%~~2020, 74% of our debt was fixed and ~~22%~~26% 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 ~~$1.7~~$0.7 billion as of December 31, ~~2019.~~2020. The change in our fixed rate percentage from December 31, ~~2019~~2020 to ~~September~~June 30, ~~2020~~2021 was primarily due to the ~~maturity~~addition of ~~interest~~fixed rate ~~swaps.~~debt, which was partially used to repay variable rate debt. Based on our ~~September~~June 30, ~~2020~~2021 outstanding variable rate debt balance, a one percentage point increase in annual LIBOR interest rates would increase our annual interest expense by approximately $30.4 million excluding the effects of capitalization of interest.

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Foreign Currency Exchange Rate Risk

As of ~~September~~June 30, ~~2020,~~2021, 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 ~~€4.9~~€5.5 billion, or ~~$5.7~~$6.5 billion based on the euro/U.S. dollar exchange rate as of ~~September~~June 30, ~~2020.~~2021. As of December 31, ~~2019,~~2020, the payments not hedged aggregated ~~€3.0~~€5.0 billion, or ~~$3.4~~$6.1 billion, based on the euro/U.S. dollar exchange rate as of December 31, ~~2019.~~2020. The change from December 31, ~~2019~~2020 to ~~September~~June 30, ~~2020~~2021 was due to ~~the delivery~~modifications of ~~Seven Seas Splendor.~~our ship construction contracts. We estimate that a 10% change in the euro as of ~~September~~June 30, ~~2020~~2021 would result in a $0.6 billion change in the U.S. dollar value of the foreign currency denominated remaining payments.

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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 ~~25.4%~~21.7% and ~~10.0%~~16.2% for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~15.0%~~21.5% and ~~10.7%~~13.4% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. We use fuel derivative agreements to mitigate the financial impact of fluctuations in fuel prices and as of ~~September~~June 30, ~~2020,~~2021, excluding fuel swaps for transactions that are no longer ~~designated as cash flow hedges,~~probable of occurrence, we had hedged approximately ~~57%, 59%~~43%, 37% and ~~13%~~14% of our remaining ~~2020,~~ 2021, 2022 and 2023 projected metric tons of fuel purchases, respectively. As of December 31, ~~2019,~~2020, we had hedged approximately ~~56%~~59%, ~~50%~~37% and ~~18%~~15% of our ~~2020,~~ 2021, 2022 and ~~2022~~2023 projected metric tons of fuel purchases, respectively. ~~Additional hedges were executed~~The percentage of fuel purchases hedged changed between December 31, ~~2019~~2020 and ~~September~~June 30, ~~2020~~2021 primarily due to ~~lower our~~changes in forecasted purchases and the termination of certain fuel ~~price risk.~~swaps.

We estimate that a 10% increase in our weighted-average fuel price would increase our anticipated ~~2020~~2021 fuel expense by ~~$3.2~~$15.1 million. This increase would be offset by an increase in the fair value of all our fuel swap agreements of ~~$3.6~~$7.6 million. Fair value of our derivative contracts is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms such as maturity, as well as other inputs such as fuel types, fuel curves, creditworthiness of the counterparty and the Company, as well as other data points.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of ~~September~~June 30, ~~2020.~~2021. There are inherent limitations in 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~~June 30, ~~2020~~2021 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~~June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Limitations on the Effectiveness of Controls

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~Class Actions~~

~~On March 12, 2020, a class action complaint, Eric Douglas v. Norwegian Cruise Lines, Frank J. Del Rio~~See the section titled “Litigation” in “Item 1—Financial Statements—Notes to Consolidated Financial Statements—Note 9 Commitments and ~~Mark A. Kempa, Case No. 1:20-CV-21107, was filed~~Contingencies” in ~~the United States District Court~~Part I of this quarterly report for the Southern District of Florida, naming the Company, Frank J. Del Rio, the Company’s President and Chief Executive Officer, and Mark A. Kempa, the Company’s Executive Vice President and Chief Financial Officer, as defendants. Subsequently, two similar class action complaints were also filed in the United States District Court for the Southern District of Florida naming the same defendants. On July 31, 2020, a consolidated amended class action complaint was filed by lead plaintiff’s counsel. The complaint asserts claims, purportedly brought on behalf of a class of shareholders, under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and allege that the Company made false and misleading statements to the market and customersinformation about COVID-19. The complaint seeks unspecified damages and an award of costs and expenses, including reasonable attorneys’ fees, on behalf of a purported class of purchasers of our ordinary shares between February 20, 2020 and March 10, 2020. We believe that the allegations contained in the complaint are without merit and intend to defend the complaint vigorously. We cannot predict at this point the length of time that this action will be ongoing or the liability, if any, which may arise therefrom.

~~Booksafe Travel Protection Plan~~

As previously disclosed in our Annual Report on Form 10-K, as updated by our Current Report on Form 8-K filed on July 8, 2020, on September 21, 2018, a proposed class-action lawsuit was filed by Marta and Jerry Phillips and others against NCLC 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 alleged that the Company concealed that it received proceeds on the sale of the travel insurance portion of the plan. The complaint sought an unspecified amount of damages, fees and costs. The Company moved to invoke the arbitration clause of the ticket contract to move the case out of Federal Court. On May 29, 2019, the Court granted the motion and compelled the plaintiffs to submit their claims to arbitration on an individual basis, dismissing the claims before the Court with prejudice. The plaintiffs appealed the order and on August 10, 2020 the United States Court of Appeals for the eleventh circuit affirmed the lower Court’s order. This matter is now closed.

~~Helms-Burton Act~~

On August 27, 2019, two lawsuits were filed against Norwegian Cruise Line Holdings Ltd., the parent company of NCLC, in the United States District Court for the Southern District of Florida under Title III of the Cuban Liberty and Solidarity (Libertad) Act of 1996, also known as the Helms-Burton Act. The complaint filed by Havana Docks Corporation alleges it holds an interest in the Havana Cruise Port Terminal and the complaint filed by Javier Garcia-Bengochea alleges that he holds an interest in the Port of Santiago, Cuba, both of which were expropriated by the Cuban Government. The complaints further allege that the Company “trafficked” in those properties by embarking and disembarking passengers at these facilities. The plaintiffs seek all available statutory remedies, including the value of the expropriated property, plus interest, treble damages, attorneys’ fees and costs. On January 7, 2020, the United States District Court for the Southern District of Florida dismissed the claim by Havana Docks Corporation. On April 14, 2020, the district court granted Havana Docks Corporation’s motion to reconsider and vacated its order dismissing the claim, allowing Havana Docks Corporation to file an amended complaint on April 16, 2020. On April 24, 2020, we filed a motion seeking permission to appeal the district court’s order which was subsequently denied. On September 1, 2020,

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the Court entered an order staying all case deadlines and administratively closed the Garcia-Bengochea matter pending the outcome of the appeal in a related case brought by the same plaintiff. We believe we have meritorious defenses to the claims and intend to vigorously defend these matters.

~~Other~~

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.~~proceedings.

Item 1A. Risk Factors

We refer you to our Annual Report on Form 10-K for a discussion of the risk factors that affect our business and financial results. We wish to caution you that the risk factors discussed in “Item 1A. Risk Factors” in our 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. You should not interpret the disclosure of a risk to imply that the risk has not already materialized. COVID-19 has also had the effect of heightening many of the other risks described in the “Risk Factors” included in our Annual Report on Form 10-K, such as those relating to our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

Other than updates to the risk factors set forth below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K.

COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations. The current, and uncertain future, impact of the COVID-19 pandemic, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlook, plans, goals, growth, reputation, cash flows, liquidity, demand for voyages and share price.

In late 2019, an outbreak of COVID-19 was identified in Wuhan, China. The COVID-19 pandemic has since spread and grown globally, including within the United States and, in March 2020, the President of the United States declared a national emergency. The spread of COVID-19 and the developments surrounding the global pandemic are having significant negative impacts on all aspects of our business. In March 2020, we implemented a voluntary suspension of all cruise voyages across our three brands, which ~~has~~was subsequently ~~been~~ extended through ~~December 31, 2020. All guests were disembarked from~~June 2021. We began resuming cruises voyages in July 2021 on a limited basis. We expect the 28remaining ships in ~~the Company’s~~our fleet ~~by March 28, 2020. We are currently expecting a gradual phased relaunch of cruise voyages in the future,~~will continue incrementally resuming voyage operations through April 1, 2022, but due to the uncertainties surrounding the COVID-19 pandemic, it may take us longer than expected to return our entire fleet to cruise voyage operations and/or the suspension ~~may instead be extended again or~~ could potentially be reinstated after we have begun sailing, and the total length of time the ~~suspension~~majority of our fleet is out of cruise voyage operations may be prolonged. In addition, we have been, and will continue to be, further negatively impacted by related developments, including heightened governmental regulations and travel advisories, including recommendations and orders by the U.S. Department of State, the CDC and the Department of Homeland Security, and travel bans and restrictions, each of which has impacted, and is expected to continue to significantly impact, global guest sourcing and our access to various ports of ~~call.~~call around the globe. On October 30, 2020, the CDC issued a Conditional Order that introduces a phased approach for the resumption of passenger ~~cruises.~~cruises in the U.S. depending on a cruise line’s ability to implement certain protocols and procedures. We have received conditional sailing certificates for certain ships and are ~~reviewing~~in the ~~Conditional Order, but as currently drafted, it is unclear whether we~~process of seeking certifications for the remaining ships in our fleet that will be ~~able~~operating out of the U.S., but our ability to comply with the Conditional Order in the future is unknown. As a result of these and other regulatory requirements and other logistical challenges, the ~~timing~~timeline for our ability to ~~resume~~return our entire fleet to cruises both in and outside of the U.S. is ~~therefore uncertain.~~fluid. Additionally, ~~compliance~~in the U.S., certain states have enacted legislation prohibiting companies from verifying the vaccination status of guests, which in some instances we have challenged in court. Compliance with the Conditional Order and other regulations may involve significant costs and could create significant uncertainties about our ability to continue to operate our cruise voyages

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~~once sailing resumes.~~ in the U.S. We will continue to incur COVID-19 related costs as we implement additional health-related protocols on our ships, such as ~~physical distancing measures,~~controlled capacity and testing, which may have a significant effect on our operations. In addition, the industry will be subject to enhanced health and safety requirements which may be costly and take a significant amount of time to implement across our fleet. There is no guarantee that the health and safety protocols we implement will be successful in preventing the spread of COVID-19 ~~within~~onboard our ships and among our passengers and crew.

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To date, the COVID-19 pandemic has resulted in significant costs and lost revenue as a result of the suspension of ~~sailings,~~cruise voyages, implementation of additional health and safety measures, reduced demand for cruise vacations, guest compensation, itinerary modifications, redeployments and cancellations, travel restrictions and advisories, the unavailability of ports and/or destinations, costs to return our passengers ~~and certain crew members~~ to their home destinations and expenses to transport our crew to and from our ships and to assist some of our crew that ~~have been~~were unable to return home in an optimal time frame with food and housing.

~~We have actively worked to disembark the vast majority of our crew members who will not remain with our ships through the suspension and transport them safely to their home countries, but our~~Our ability to transport crew to and from our ships ~~in the future~~ is dependent on a number of factors, including the ability to transport crew members to and from their home countries due to the limited number of commercial flights and charter options available, and governmental restrictions and regulations with respect to disembarking crew members and travel generally. Additionally, our policy that crew members must be fully vaccinated may create logistical challenges due to potential limitations on vaccine supplies, logistical complexities relating to vaccinating crew members who reside in different countries around the world and vaccine hesitancy. Such restrictions on crew travel and challenges in making sure our crew members have been vaccinated could impact our ability to ~~re-staff~~staff our ships ~~once~~as operations continue to resume.

Between March 12, 2020 and April 30, 2020, three class action lawsuits were filed against ~~the Company~~us under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, alleging that ~~the Company~~we made false and misleading statements to the market and customers about ~~COVID-19.~~COVID-19, which were combined and later dismissed in April 2021. In addition, in March 2020 the Florida Attorney General announced an investigation related to ~~the Company’s~~our marketing during the COVID-19 pandemic. Following the announcement of the investigation by the Florida Attorney General, we received notifications from other attorneys general and governmental agencies that they are conducting similar investigations. We may be the subject of additional lawsuits and investigations stemming from COVID-19. We cannot predict the number or outcome of any such proceedings and the impact that they will have on our financial results, but any such impact may be material.

We have nine newbuilds on order, scheduled to be delivered through 2027. The impacts of COVID-19 on the shipyards where our ships are under construction ~~(or~~or will be ~~constructed)~~constructed, have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged.

Due to the unknown duration and extent of the COVID-19 pandemic, travel restrictions, bans and advisories, uncertainties around our ability to comply with the Conditional Order and or any additional or future regulatory restrictions on our operations, the potential unavailability of ports and/or destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, there are continuing uncertainties about when our full fleet will be back in service at historical occupancy ~~levels even if we are able to relaunch cruise voyages.~~levels. Moreover, ~~even after we relaunch our cruise voyages,~~ demand for cruises may remain weak for a significant length of time and we cannot predict if and when each brand will return to pre-pandemic demand or ~~pricing.~~pricing levels. Due to the discretionary nature of leisure travel spending and the competitive nature of the cruise industry, our revenues are heavily influenced by the condition of the U.S. economy and economies in other regions of the world. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased demand for cruise vacations, changes in booking practices and related reactions by our competitors, all of which in turn have had, and may continue to have in the future, a strong negative effect on our business. In particular, our bookings may be negatively impacted by enhanced health and safety protocols, including vaccination requirements, concerns that cruises are susceptible to the spread of infectious diseases as well as adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of COVID-19. The ongoing COVID-19 pandemic and associated decline in economic activity and increase in unemployment levels are expected to have a severe and prolonged effect on the global economy generally and, in turn, is expected to depress demand for cruise vacations into the foreseeable future. Due to the uncertainty surrounding the duration and severity of this pandemic, we can provide no assurance as to when and at what pace demand for cruise vacations will return to pre-pandemic levels, if at all. Accordingly, we cannot predict the full impact of COVID-19 on our business, financial condition and results of operations. In addition, we cannot predict the impact COVID-19 will have on our partners, such as travel agencies, suppliers and other vendors. We may be adversely impacted by any adverse impact our partners suffer.

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As a result of these unprecedented circumstances we are not able to predict the full impact of the COVID-19 pandemic on our Company. In particular, we cannot predict the impact on our financial performance and our cash flows required for cash refunds of fares for cancelled sailings as a result of the effects of the COVID-19 pandemic and the public’s concern regarding the health and safety of travel, including by cruise ship, and related decreases in demand for travel and cruising. Depending on the ~~length of the suspension~~timing for bringing our full fleet back in service and number of cancellations, we may be required to provide cash refunds for a substantial portion of the balance of our advanced ticket sales.

Moreover, our ability to attract and retain guests and crew depends, in part, upon the perception and reputation of our Company and our brands and the public’s concerns regarding the health and safety of travel generally, as well as regarding the cruise industry and our ships. Actual or perceived risk of infection could have an adverse effect on the public’s perception of the Company, which could harm our reputation and business. Additionally, some of our protocols, such as our requirement that all guests and crew must be vaccinated for our initial voyages, may attract negative publicity.

As a result of the impacts of COVID-19, provisions in our credit card processing and other commercial agreements have and may continue to adversely affect our liquidity. We have agreements with several credit card companies to process the sale of tickets and provide other services. Under these agreements, the credit card companies could, under certain circumstances and upon written notice, require us to maintain a reserve, which reserve ~~could~~would be funded by the credit card companies withholding or offsetting our credit card receivables, or our posting of cash or other collateral. As a result of the impacts of COVID-19, we have seen an increase in demand from consumers for refunds on their tickets, and we anticipate this will continue to be the case for the near future. ~~Requests for refunds may reduce our liquidity and risk triggering liquidity covenants~~As of June 30, 2021, we had a reserve of approximately $800 million with a credit card processor recognized in ~~these processing agreements and, in doing so, could force us to post cash~~accounts receivable, net or other ~~collateral as a reserve with the credit card processing companies in accordance with the terms of our agreements with them. Currently,~~long-term assets. Additionally, we ~~have had approximately $40 million of advanced ticket deposits withheld~~are required to ~~satisfy these requirements~~fund all refunds until further notice and have provided a reserve consisting of $70 million of cash. We have also discussed providing second priority liens on certain ships with a collective equity value of approximately $700 million based on appraisals as of December 31, 2019. Until these discussions are finalized, a significant portion100% of incoming advance ticket sales deposits ~~are being~~with this credit card processor will be withheld and ~~will~~are not expected to be released ~~upon satisfactory perfection~~until the credit card processor’s exposure is fully collateralized. As of June 30, 2021, the ~~liens. These discussions~~exposure was approximately $940 million. The reserve shortfall of approximately $140 million will decrease as refunds are ~~ongoing,~~funded, cruises are provided and ~~any cash~~amounts withheld by the credit card processor are allocated to the reserve ~~or collateral requested could be increased or decreased. If we do not meet an agreed upon minimum liquidity in~~rather than remitted to the ~~future, we~~Company. We may be required to pledge additional collateral and/or post cash reserves or take other actions that may further reduce our liquidity. As a consequence, our financial position and liquidity could be further materially impacted.

As a result of all of the foregoing, we will report a net loss ~~on both~~for the three months ending September 30, 2021 and expect to report a ~~U.S. GAAP and adjusted basis~~net loss until we are able to resume regular voyages, including for the year ending December 31, ~~2020.~~2021. Our ability to forecast our cash inflows and additional capital needs is hampered, and we could be required to raise additional capital in the future. Our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, the terms and conditions of our existing debt agreements and any agreements governing future indebtedness, our prospects and our credit ratings. Since March 2020, Moody’s has downgraded ~~the~~our long-term issuer rating ~~of NCLC~~ to B2, ~~its~~our senior secured rating to B1 and ~~its~~our senior unsecured rating to Caa1. Since April 2020, S&P Global has downgraded ~~the~~our issuer credit rating ~~of NCLC~~ to ~~B+,~~B, lowered ~~its issuer-level~~our issue-level rating on ~~NCLC’s~~our $875 million ~~senior secured revolving loan facility~~Revolving Loan Facility and $1.5 billion ~~term loan~~Term Loan A Facility to ~~BB, its issuer-level~~BB-, our issue-level rating on ~~NCLC’s~~our $675 million ~~senior secured notes due~~ 2024 Senior Secured Notes and $750 million ~~senior secured notes due~~ 2026 Senior Secured Notes to ~~BB-~~B+ and ~~its~~our senior unsecured rating to B.B-. If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt or equity financing will be further negatively impacted. ~~There~~Accordingly, there is no guarantee that debt or equity financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations.

The agreements governing our indebtedness contain, and any instruments governing future indebtedness of ours may contain, covenants that impose significant operating and financial restrictions on us, including restrictions or prohibitions on our ability to, among other things: incur or guarantee additional debt or issue certain preference shares; pay dividends on or make distributions in respect of our share capital or make other restricted payments, including the ability of ~~the Company’s~~our subsidiaries to pay dividends or make distributions to ~~the Company;~~us; repurchase or redeem capital stock or subordinated indebtedness; make certain investments or acquisitions; transfer, sell or create liens on certain assets; and consolidate or merge with, or sell or otherwise dispose of all or substantially all of our assets to other companies. As a result of these covenants, we are limited in the manner in which we conduct our business, and we may be unable to engage in favorable

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business activities or finance future operations or capital needs. The terms of any instruments

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governing future indebtedness may also require us to provide incremental collateral, which may further restrict our business operations.

In addition, the COVID-19 pandemic has significantly increased economic and demand uncertainty. The current pandemic and continued spread of COVID-19 ~~may cause~~has caused a global recession, which ~~would~~could have a further adverse impact on our financial condition and operations, and this impact could exist for an extended period of time.

The extent of the effects of the pandemic on our business and the cruise industry at large is highly uncertain and will ultimately depend on future developments, many of which are outside of our control, including, but not limited to, the duration, spread, severity and any recurrence of the pandemic, the severity and transmission rates of new more contagious and/or vaccine-resistant variants of COVID-19, the availability, distribution, rate of public acceptance and efficacy of vaccines and therapeutics for COVID-19, the duration and scope of related federal, state and local government orders and restrictions, the extent of the impact of COVID-19 on overall demand for cruise vacations and the length of time it takes for demand and pricing to return and normal economic and operating conditions to resume, all of which are highly uncertain and cannot be predicted. COVID-19 has also had the effect of heightening many of the other risks described ~~in the “Risk Factors” described~~ herein, ~~and included in our Annual Report on Form 10-K,~~ such as those relating to our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

~~We could need additional financing~~Additionally, epidemics, pandemics and viral outbreaks or other wide-ranging health scares in the future ~~which may not be available on favorable terms, or at all, and may be dilutive to existing shareholders.~~

We could need additional equity or debt financing to fund our operations in the future, especially if our suspension of cruise voyages is prolonged. We may be unable to obtain any desired additional financing on terms favorable to us, or at all, depending on market and other conditions. The ability to raise additional financing depends on numerous factors that are outside of our control, including general economic and market conditions, the health of financial institutions, our credit ratings and investors’ and lenders’ assessments of our prospects and the prospects of the cruise industry in general, all of which may be impacted by the COVID-19 pandemic. If we raise additional funds through equity or debt issuances, NCLH’s shareholders could experience dilution of their ownership interest, and these securities could have rights, preferences, and privileges that are superior to that of holders of NCLH’s ordinary shares. If we raise additional funds by issuing debt, we may be subject to limitations on our operations due to restrictive covenants, which may be more restrictive than the covenants in our existing debt agreements, and we may be required to further encumber our assets. We may not have sufficient available collateral to pledge to support additional financing. If adequate funds are not available on acceptable terms, or at all, we may be unable to fund our operations, or respond to competitive pressures, any of which could negatively affect our business. There can be no assurance that our ability to otherwise access the credit or credit markets will not be adversely affected by changes in the financial markets and the global economy or that such financing will be available to us in sufficient amounts or on acceptable terms. If we are not able to fulfill our liquidity needs through operating cash flows and/or borrowings under credit facilities or otherwise in the capital markets, our business and financial condition could be adversely affected and it may be necessary for us to reorganize our company in its entirety, including through bankruptcy proceedings, and NCLH’s shareholders may lose their investment in its ordinary shares.

As a result of the COVID-19 pandemic, we have paused our global fleet cruise operations, and if we are unable to recommence normal operations, we may not be in compliance with maintenance covenants in certain of our debt facilities.

Certain of our debt facilities include maintenance and financial covenants. For example, under the Fifth Amended and Restated Credit Agreement, dated as of May 8, 2020, with a subsidiary of NCLC, as co-borrower and JPMorgan Chase Bank, N.A., as administrative agent, we are required to maintain a loan to value ratio of no less than 0.70 to 1.00. Financial covenants include free liquidity of no less than $50,000,000 at all times, a total net funded debt to total capitalization ratio of less than 0.70 to 1.00 at the end of each quarter and either free liquidity of no less than $100,000,000 or EBITDA to consolidated debt service ratio of at least 1.25 to 1.00 at the end of each fiscal quarter. As a result of the COVID- 19 pandemic, we have paused our global fleet cruise operations and if we are unable to re-commence normal operations, we may be out of compliance with some or all of the foregoing maintenance and financial covenants in certain of our other debt facilities. If we expect to not be in compliance, we would ~~expect to seek waivers from the lenders under these facilities or renegotiate these facilities prior to any covenant violation.~~

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Any covenant waiver or renegotiation of any of our debt facilities may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable to us under these debt facilities, and such increased costs, restrictions and modifications may vary among debt facilities. Our ability to provide additional lender protections under these facilities, including the granting of security interests in collateral, will be limited by the restrictions in our indebtedness. There can be no assurance that we would be able to obtain waivers or renegotiate these facilities in a timely manner, on acceptable terms or at all. If we were not able to obtain a covenant waiver under any one or more of these debt facilities or renegotiate such facilities, we would be in default of such agreements, which could result in cross defaults to our other debt agreements. As a consequence, we would need to refinance or repay the applicable debt facility or facilities, and would be required to raise additional debt or equity capital, or divest assets, to refinance or repay such facility or facilities. If we were to be unable to obtain a covenant waiver under any one or more of these debt facilities or renegotiate such facilities, there can be no assurance that we would be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay such facility or facilities.

With respect to each of these debt facilities, if we were unable to or did not obtain a waiver, renegotiate or refinance or repay such debt facilities, it would lead to an event of default under such facilities, which could lead to an acceleration of the indebtedness under such debt facilities. In turn, this would lead to an event of default and potential acceleration of amounts due under all of our outstanding debt and derivative contract payables, including our notes. As a result, the failure to obtain the covenant waivers or renegotiate our facilities as described above would have a material adverse effect on us and our ability to service our debt obligations.

~~Any further impairment of our trade names or goodwill could~~likely also adversely affect our business, financial condition and ~~operating results.~~

~~We evaluate trade names and goodwill for impairment on an annual basis, or more frequently when circumstances indicate that the carrying value~~results of a reporting unit may not be recoverable. Several factors including a challenging operating environment, impacts affecting consumer demand or spending, the deterioration of general macroeconomic conditions, or other factors could result in a change to the future cash flows we expect to derive from our operations. Reductions of the cash flows used in the impairment analyses may result in the recording of an impairment charge to a reporting unit’s trade name or goodwill. During the three months ended March 31, 2020, we recognized a goodwill impairment loss of $1.3 billion. See Note 4 —“Intangible Assets” for additional information. As of September 30, 2020, there was $98.1 million of goodwill for the Regent Seven Seas reporting unit after impairment. We also recognized an impairment loss for our Oceania Cruises and Regent Seven Seas Cruises trade names during the three months ended March 31, 2020 in an aggregate amount of $317.0 million, with $500.5 million remaining as of September 30, 2020. We believe that we have made reasonable estimates and judgments. However, a change in our estimated future operating cash flows may result in a decline in fair value in future periods, which may result in a need to recognize additional impairment charges.

Any potential government disaster relief assistance, or other governmental assistance due to the impacts of COVID-19, could impose significant limitations on our corporate activities and may not be on terms favorable to us.

If any government agrees to provide disaster relief assistance, or other assistance due to the impacts of COVID-19, it may impose certain requirements on the recipients of the relief including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt and other similar restrictions until the relief is repaid or redeemed in full. We cannot assure you that any legislation to provide government disaster relief assistance, or other governmental assistance to us due to the impacts of COVID-19, will be approved and, even if approved, will not significantly limit our corporate activities or be on terms that are favorable to us. Such restrictions and terms could adversely impact our business and operations.

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Item 6. Exhibits




~~3.1~~		Certificate of Designations, Preferences and Other Rights of Series A-3 Preference Shares of NCL Corporation Ltd. (incorporated herein by reference to Exhibit 3.3 to NCL Corporation Ltd.’s Form 10-Q filed on August 10, 2020 (File No. 333-128780))
~~4.1~~		Indenture, dated July 21, 2020, by and among NCL Corporation Ltd., as issuer, Norwegian Cruise Line Holdings Ltd., as guarantor, and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to Norwegian Cruise Line Holdings Ltd.’s Form 8-K filed on July 21, 2020 (File No. 001-35784))
~~4.2~~		Indenture, dated July 21, 2020, by and among NCL Corporation Ltd., as issuer, the guarantors party thereto and U.S. Bank National Association, as trustee, principal paying agent, transfer agent, registrar and security agent (incorporated herein by reference to Exhibit 4.2 to Norwegian Cruise Line Holdings Ltd.’s Form 8-K filed on July 21, 2020 (File No. 001-35784))
10.1		~~Directors’ Compensation Policy (effective~~Amendment and Restatement Agreement, dated as of June 17, 2021, but effective as of July ~~14, 2020)~~5, 2021, among Leonardo One, Ltd., as borrower, NCL Corporation Ltd., as guarantor, NCL International, Ltd., as shareholder, Norwegian Cruise Line Holdings Ltd., the lenders party thereto, Crédit Agricole Corporate and Investment Bank, BNP Paribas Fortis S.A./N.V., KfW IPEX-Bank GmbH, HSBC Bank PLC and Cassa Depositi e Prestiti S.P.A., as joint mandated lead arrangers, and the other parties thereto, which amends and restates the Loan Agreement, originally dated as of April 12, 2017 (incorporated herein by reference to Exhibit 10.1 to Norwegian Cruise Line Holdings Ltd.’s Form 10-Q filed on August ~~10, 2020~~9, 2021 (File No. 001-35784))†#
10.2		~~Form~~Amendment and Restatement Agreement, dated as of ~~Indemnification Agreement by and between~~June 17, 2021, but effective as of July 5, 2021, among Leonardo Two, Ltd., as borrower, NCL Corporation Ltd., as guarantor, NCL International, Ltd., as shareholder, Norwegian Cruise Line Holdings Ltd., the lenders party thereto, Crédit Agricole Corporate and ~~each~~Investment Bank, BNP Paribas Fortis S.A./N.V., HSBC Bank PLC and Cassa Depositi e Prestiti S.P.A., as joint mandated lead arrangers, and the other parties thereto, which amends and restates the Loan Agreement, originally dated as of ~~its directors, executive officers and certain other officers (effective July 14, 2020)~~April 12, 2017 (incorporated herein by reference to Exhibit 10.2 to Norwegian Cruise Line Holdings Ltd.’s Form 10-Q filed on August ~~10, 2020~~9, 2021 (File No. 001-35784))†#
10.3		Amendment and Restatement Agreement, dated as of June 17, 2021, but effective as of July 6, 2021, among Leonardo Three, Ltd., as borrower, NCL Corporation Ltd., as guarantor, NCL International, Ltd., as shareholder, Norwegian Cruise Line Holdings Ltd., the lenders party thereto, HSBC Bank PLC, BNP Paribas Fortis S.A./N.V., KfW IPEX-Bank GmbH and Cassa Depositi e Prestiti S.P.A., as joint mandated lead arrangers, and the other parties thereto, which amends and restates the Loan Agreement, originally dated as of April 12, 2017 (incorporated herein by reference to ~~Employment~~Exhibit 10.3 to Norwegian Cruise Line Holdings Ltd.’s Form 10-Q filed on August 9, 2021 (File No. 001-35784))#
10.4		Amendment and Restatement Agreement, dated as of June 17, 2021, but effective as of July 6, 2021, among Leonardo Four, Ltd., as borrower, NCL Corporation Ltd., as guarantor, NCL International, Ltd., as shareholder, Norwegian Cruise Line Holdings Ltd., the lenders party thereto, KfW IPEX-Bank GmbH, BNP Paribas Fortis S.A./N.V., HSBC Bank PLC and Cassa Depositi e Prestiti S.P.A., as joint mandated lead arrangers, and the other parties thereto, which amends and restates the Loan Agreement, originally dated as of April 12, 2017 (incorporated herein by reference to Exhibit 10.4 to Norwegian Cruise Line Holdings Ltd.’s Form 10-Q filed on August 9, 2021 (File No. 001-35784))#
10.5		Amendment and ~~between Prestige~~Restatement Agreement, dated as of June 17, 2021, but effective as of July 5, 2021, among Leonardo Five, Ltd., as borrower, NCL Corporation Ltd., as guarantor, NCL International, Ltd., as shareholder, Norwegian Cruise ~~Services,~~Line Holdings Ltd., the lenders party thereto, Crédit Agricole Corporate and Investment Bank, BNP Paribas Fortis S.A./N.V., HSBC Bank PLC, KfW IPEX-Bank GmbH, Cassa Depositi e Prestiti S.P.A., Banco Santander, S.A. and Société Générale, as joint mandated lead arrangers, and the other parties thereto, which amends and restates the Loan Agreement, originally dated as of December 19, 2018 (incorporated herein by reference to Exhibit 10.5 to Norwegian Cruise Line Holdings Ltd.’s Form 10-Q filed on August 9, 2021 (File No. 001-35784))#
10.6		Amendment and Restatement Agreement, dated as of June 17, 2021, but effective as of July 5, 2021, among Leonardo Six, Ltd., as borrower, NCL Corporation Ltd., as guarantor, NCL International, Ltd., as shareholder, Norwegian Cruise Line Holdings Ltd., the lenders party thereto, Crédit Agricole Corporate and Investment Bank, BNP Paribas Fortis S.A./N.V., HSBC Bank PLC, KfW IPEX-Bank GmbH, Cassa Depositi e Prestiti S.P.A., Banco Santander, S.A. and Société Générale, as joint mandated lead arrangers, and the other parties thereto, which amends and restates the Loan Agreement, originally dated as of December 19, 2018 (incorporated herein by reference to Exhibit 10.6 to Norwegian Cruise Line Holdings Ltd.’s Form 10-Q filed on August 9, 2021 (File No. 001-35784))#
10.7		Amendment and Restatement Agreement, dated as of June 17, 2021, but effective as of July 5, 2021, among Explorer III New Build, LLC, as borrower, NCL Corporation Ltd., as guarantor, Seven Seas Cruises S. de R.L., as shareholder, Norwegian Cruise Line Holdings Ltd., the lenders party thereto, Crédit Agricole Corporate and ~~Robert J. Binder, entered into~~Investment Bank, BNP Paribas Fortis S.A./N.V., HSBC Bank PLC, KfW IPEX-

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		Bank GmbH, Cassa Depositi e Prestiti S.P.A., Banco Santander, S.A. and Société Générale., as joint mandated lead arrangers, and the other parties thereto, which amends and restates the Loan Agreement, originally dated as of December 19, 2018 (incorporated herein by reference to Exhibit 10.7 to Norwegian Cruise Line Holdings Ltd.’s Form 10-Q filed on ~~September~~August 9, 2021 (File No. 001-35784))#
10.8		Amendment and Restatement Agreement, dated as of June 17, 2021, but effective as of July 5, 2021, among O Class Plus One, LLC, as borrower, NCL Corporation Ltd., as guarantor, Oceania Cruises S. de R.L., as shareholder, Norwegian Cruise Line Holdings Ltd., the lenders party thereto, Crédit Agricole Corporate and Investment Bank, BNP Paribas Fortis S.A./N.V., HSBC Bank PLC, KfW IPEX-Bank GmbH, Cassa Depositi e Prestiti S.P.A., Banco Santander, S.A. and Société Générale., as joint mandated lead arrangers, and the other parties thereto, which amends and restates the Loan Agreement, originally dated as of December 19, ~~2020~~2018 (incorporated herein by reference to Exhibit 10.8 to Norwegian Cruise Line Holdings Ltd.’s Form 10-Q filed on August 9, 2021 (File No. 001-35784))#
10.9		Amendment and Restatement Agreement, dated as of June 17, 2021, but effective as of July 5, 2021, among O Class Plus Two, LLC, as borrower, NCL Corporation Ltd., as guarantor, Oceania Cruises S. de R.L., as shareholder, Norwegian Cruise Line Holdings Ltd., the lenders party thereto, Crédit Agricole Corporate and Investment Bank, BNP Paribas Fortis S.A./N.V., HSBC Bank PLC, KfW IPEX-Bank GmbH, Cassa Depositi e Prestiti S.P.A., Banco Santander, S.A. and Société Générale., as joint mandated lead arrangers, and the other parties thereto, which amends and restates the Loan Agreement, originally dated as of December 19, 2018 (incorporated herein by reference to Exhibit 10.9 to Norwegian Cruise Line Holdings Ltd.’s Form 10-Q filed on August 9, 2021 (File No. 001-35784))#
10.10		Norwegian Cruise Line Holdings Ltd. Amended and Restated 2013 Performance Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Norwegian Cruise Line Holdings Ltd.’s Form 8-K filed on ~~September 22, 2020~~May 21, 2021 (File No. 001-35784))†
~~10.4~~		Employment Agreement by and between NCL (Bahamas) Ltd. and Frank J. Del Rio, entered into on October 1, 2020 (incorporated herein by reference to Exhibit 10.1 to Norwegian Cruise Line Holdings Ltd.’s Form 8-K filed on October 5, 2020 (File No. 001-35784))†
10.5*		~~Form of Retention Bonus Letter Agreement†~~
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


101*		The following unaudited consolidated financial statements from NCL Corporation Ltd.’s Quarterly Report on Form 10‑Q for the quarterly period ended ~~September~~June 30, ~~2020,~~2021, formatted in Inline XBRL:

		(i) the Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020;

		(ii) the Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020;

		(iii) the Consolidated Balance Sheets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019;~~2020;

		(iv) the Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020;

		(v) the Consolidated Statements of Changes in Shareholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; and

		(vi) the Notes to the Consolidated Financial Statements.

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104*

The cover page from NCL Corporation Ltd.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020,~~2021, formatted in Inline XBRL and included in the interactive data files submitted as Exhibit 101.

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*Filed herewith.

** Furnished herewith.

†# Certain portions of this document that constitute confidential information have been redacted in accordance with Regulation S-K Item 601(b)(10).

†	Management contract or compensatory plan.

~~Management contract or compensatory plan.~~

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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.


	NCL CORPORATION LTD.
	(Registrant)

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

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

Dated: ~~November~~August 9, ~~2020~~2021

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		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3128

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4944

Item 4.	Controls and Procedures	5045

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5246

Item 1A.	Risk Factors	5346

Item 6.	Exhibits	5850

SIGNATURES		6053


	Reporting Unit
	Norwegian				Regent
	Cruise		Oceania		Seven Seas		Total
	Line		Cruises		Cruises		Goodwill
Balance, December 31, 2019	$	403,805	$	523,026	$	462,100	$	1,388,931
Impairment loss		(403,805)		(523,026)		(363,966)		(1,290,797)
Balance, September 30, 2020	$	—	$	—	$	98,134	$	98,134


	Amortization
Year Ended December 31,	Expense
2021	$	75
2022		75
2023		75
2024		75
2025		44