PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Revenue
Passenger ticket	$	1,071,815		$	948,059		$	2,630,405		$	2,406,533		$	1,192,023		$	1,071,815		$	2,916,731		$	2,630,405
Onboard and other		412,921			336,851			1,118,798			901,992			459,715			412,921			1,229,891			1,118,798
Total revenue		1,484,736			1,284,910			3,749,203			3,308,525			1,651,738			1,484,736			4,146,622			3,749,203
Cruise operating expense
Commissions, transportation and other		249,519			225,586			618,492			589,851			266,173			249,519			683,628			618,492
Onboard and other		90,661			84,171			230,416			210,701			98,476			90,661			250,254			230,416
Payroll and related		193,122			170,694			554,741			490,253			206,142			193,122			593,502			554,741
Fuel		86,250			88,829			248,529			267,784			91,231			86,250			266,780			248,529
Food		50,902			46,419			151,674			131,969			53,883			50,902			147,401			151,674
Other		114,280			102,023			351,263			307,143			122,260			114,280			368,640			351,263
Total cruise operating expense		784,734			717,722			2,155,115			1,997,701			838,165			784,734			2,310,205			2,155,115
Other operating expense
Marketing, general and administrative		174,813			150,558			504,694			411,879			202,221			174,813			587,914			504,694
Depreciation and amortization		111,575			109,798			317,480			314,381			134,532			111,575			376,878			317,480
Total other operating expense		286,388			260,356			822,174			726,260			336,753			286,388			964,792			822,174
Operating income		413,614			306,832			771,914			584,564			476,820			413,614			871,625			771,914
Non-operating income (expense)
Interest expense, net		(60,662	)		(49,784	)		(188,836	)		(153,219	)		(66,339	)		(60,662	)		(183,495	)		(188,836	)
Other expense		(5,333	)		(1,733	)		(13,281	)		(35,589	)
Other income (expense), net														(3,262	)		(5,333	)		(11,686	)		(13,281	)
Total non-operating income (expense)		(65,995	)		(51,517	)		(202,117	)		(188,808	)		(69,601	)		(65,995	)		(195,181	)		(202,117	)
Net income before income taxes		347,619			255,315			569,797			395,756			407,219			347,619			676,444			569,797
Income tax expense		(5,241	)		(3,528	)		(8,944	)		(6,931	)		(6,527	)		(5,241	)		(15,369	)		(8,944	)
Net income	$	342,378		$	251,787		$	560,853		$	388,825		$	400,692		$	342,378		$	661,075		$	560,853
Weighted-average shares outstanding
Basic		227,096,142			227,384,616			227,102,560			225,805,901			228,267,307			227,096,142			227,891,916			227,102,560
Diluted		227,598,607			230,274,756			227,859,617			229,860,900			229,816,956			227,598,607			229,157,257			227,859,617
Earnings per share
Basic	$	1.51		$	1.11		$	2.47		$	1.72		$	1.76		$	1.51		$	2.90		$	2.47
Diluted	$	1.50		$	1.09		$	2.46		$	1.69		$	1.74		$	1.50		$	2.88		$	2.46

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

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)

	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015			2016		2015			2017		2016		2017		2016
Net income	$	342,378	$	251,787		$	560,853	$	388,825		$	400,692	$	342,378	$	661,075	$	560,853
Other comprehensive income (loss):
Other comprehensive income:
Shipboard Retirement Plan		107		119			323		358			104		107		313		323
Cash flow hedges:
Net unrealized income (loss)		37,051		(105,227	)		112,508		(138,501	)
Net unrealized gain												97,276		37,051		221,512		112,508
Amount realized and reclassified into earnings		18,327		13,132			76,658		61,582			11,644		18,327		31,593		76,658
Total other comprehensive income (loss)		55,485		(91,976	)		189,489		(76,561	)
Total other comprehensive income												109,024		55,485		253,418		189,489
Total comprehensive income	$	397,863	$	159,811		$	750,342	$	312,264		$	509,716	$	397,863	$	914,493	$	750,342

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

Norwegian Cruise Line Holdings Ltd.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)

	September 30, 2016			December 31, 2015			September 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	155,431		$	115,937		$	522,904		$	128,347
Accounts receivable, net		55,838			44,996			56,764			63,215
Inventories		65,983			58,173			78,915			66,255
Prepaid expenses and other assets		159,447			121,305			206,251			153,276
Total current assets		436,699			340,411			864,834			411,093
Property and equipment, net		10,054,220			9,458,805			10,916,824			10,117,689
Goodwill		1,388,931			1,388,931			1,388,931			1,388,931
Tradenames		817,525			817,525			817,525			817,525
Other long-term assets		245,965			259,085			277,003			238,673
Total assets	$	12,943,340		$	12,264,757		$	14,265,117		$	12,973,911
Liabilities and Shareholders’ Equity
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt	$	566,911		$	629,840		$	605,827		$	560,193
Accounts payable		51,494			51,369			45,059			38,002
Accrued expenses and other liabilities		520,079			640,568			550,774			541,753
Due to Affiliate		—			20,769
Advance ticket sales		1,210,505			1,023,973			1,327,002			1,172,870
Total current liabilities		2,348,989			2,366,519			2,528,662			2,312,818
Long-term debt		5,815,248			5,767,697			6,002,877			5,838,494
Other long-term liabilities		242,376			349,661			195,974			284,873
Total liabilities		8,406,613			8,483,877			8,727,513			8,436,185
Commitments and contingencies (Note 9)
Commitments and contingencies (Note 8)
Shareholders’ equity:
Ordinary shares, $.001 par value; 490,000,000 shares authorized; 232,467,409 shares issued and 227,155,448 shares outstanding at September 30, 2016 and 232,179,786 shares issued and 227,815,301 shares outstanding at December 31, 2015		232			232
Ordinary shares, $.001 par value; 490,000,000 shares authorized; 233,770,580 shares issued and 228,458,619 shares outstanding at September 30, 2017 and 232,555,937 shares issued and 227,243,976 shares outstanding at December 31, 2016								233			232
Additional paid-in capital		3,870,040			3,814,536			3,973,350			3,890,119
Accumulated other comprehensive income (loss)		(223,161	)		(412,650	)		(61,055	)		(314,473	)
Retained earnings		1,128,871			568,018			1,864,331			1,201,103
Treasury shares (5,311,961 and 4,364,485 ordinary shares at September 30, 2016 and December 31, 2015, respectively, at cost)		(239,255	)		(189,256	)
Treasury shares (5,311,961 ordinary shares at September 30, 2017 and December 31, 2016, at cost)								(239,255	)		(239,255	)
Total shareholders’ equity		4,536,727			3,780,880			5,537,604			4,537,726
Total liabilities and shareholders’ equity	$	12,943,340		$	12,264,757		$	14,265,117		$	12,973,911

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

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2017			2016
Cash flows from operating activities
Net income	$	560,853		$	388,825		$	661,075		$	560,853
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		327,366			327,861			385,957			327,366
Loss on derivatives		1,007			21,893
(Gain) loss on derivatives								(71	)		1,007
Deferred income taxes, net		707			858			16,035			707
Gain on contingent consideration		—			(43,400	)
Write-off of deferred financing fees		11,537			195			—			11,537
Provision for bad debts and inventory		1,767			—			1,592			1,767
Share-based compensation expense		48,289			27,857			63,664			48,289
Changes in operating assets and liabilities:
Accounts receivable, net		(11,286	)		(9,563	)		571			(11,286	)
Inventories		(9,133	)		1,609			(13,923	)		(9,133	)
Prepaid expenses and other assets		(16,197	)		(599	)		(14,774	)		(16,197	)
Accounts payable		2,551			(57,837	)		3,956			2,551
Accrued expenses and other liabilities		(9,149	)		6,996			68,425			(9,149	)
Advance ticket sales		180,447			308,691			187,131			180,447
Net cash provided by operating activities		1,088,759			973,386			1,359,638			1,088,759
Cash flows from investing activities
Additions to property and equipment, net		(915,936	)		(330,808	)		(1,129,514	)		(915,936	)
Settlement of derivatives		(34,300	)		1,090			(35,255	)		(34,300	)
Investment in trademark		—			(750	)
Net cash used in investing activities		(950,236	)		(330,468	)		(1,164,769	)		(950,236	)
Cash flows from financing activities
Repayments of long-term debt		(2,687,621	)		(908,677	)		(1,006,620	)		(2,687,621	)
Repayments to Affiliate		(18,522	)		(18,521	)		—			(18,522	)
Proceeds from long-term debt		2,687,355			375,751			1,217,060			2,687,355
Proceeds from the exercise of share options		4,784			66,527
Proceeds from employee share purchase plan		2,431			858
Proceeds from employee related plans								28,063			7,215
Net share settlement of restricted share units								(6,342	)		—
Purchases of treasury shares		(49,999	)		(7,425	)		—			(49,999	)
Deferred financing fees and other		(37,457	)		(6,075	)		(32,473	)		(37,457	)
Net cash used in financing activities		(99,029	)		(497,562	)
Net cash provided by (used in) financing activities								199,688			(99,029	)
Net increase in cash and cash equivalents		39,494			145,356			394,557			39,494
Cash and cash equivalents at beginning of period		115,937			84,824			128,347			115,937
Cash and cash equivalents at end of period	$	155,431		$	230,180		$	522,904		$	155,431

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

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(in thousands)

Ordinary
Shares Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Treasury
Shares Total
Shareholders’
Equity
Balance, December 31, 2014 $ 230 $ 3,702,344 $ (242,642 ) $ 140,881 $ (82,000 ) $ 3,518,813
Share-based compensation — 27,857 — — — 27,857
Proceeds from the exercise of share options 2 66,525 — — — 66,527
Proceeds from employee share purchase plan — 858 — — — 858
Purchases of treasury shares — — — — (7,425 ) (7,425 )
Other comprehensive loss, net — — (76,561 ) — — (76,561 )
Net income — — — 388,825 — 388,825
Balance, September 30, 2015 $ 232 $ 3,797,584 $ (319,203 ) $ 529,706 $ (89,425 ) $ 3,918,894

Balance, December 31, 2015 $ 232 $ 3,814,536 $ (412,650 ) $ 568,018 $ (189,256 ) $ 3,780,880
Share-based compensation — 48,289 — — — 48,289
Proceeds from the exercise of share options — 4,784 — — — 4,784
Proceeds from employee share purchase plan — 2,431 — — — 2,431
Purchases of treasury shares — — — — (49,999 ) (49,999 )
Other comprehensive income, net — — 189,489 — — 189,489
Net income — — — 560,853 — 560,853
Balance, September 30, 2016 $ 232 $ 3,870,040 $ (223,161 ) $ 1,128,871 $ (239,255 ) $ 4,536,727

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

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

Norwegian Cruise Line Holdings Ltd.

Notes to Consolidated Financial Statements

(Unaudited)

Unless otherwise indicated or the context otherwise requires, references in this report to (i) the “Company,” “we,” “our” and “us” refer to NCLH (as defined below) and its subsidiaries (including Prestige (as defined below), except for periods prior to the consummation of the Acquisition of Prestige (as defined below)), (ii) “NCLC” refers to NCL Corporation Ltd., (iii) “NCLH” refers to Norwegian Cruise Line Holdings Ltd., (iv) “Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and its predecessors, (v) “Prestige” refers to Prestige Cruises International, Inc., together with its consolidated subsidiaries, and (vi) “PCH” refers to Prestige Cruise Holdings, Inc., Prestige’s direct ~~wholly owned~~wholly-owned subsidiary, which in turn is the parent of 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) ~~and (vii) “Affiliate” refers to Genting Hong Kong Limited and/or its affiliates (formerly Star Cruises Limited and/or its affiliates)~~. References to the “U.S.” are to the United States of America, “dollars” or “$” are to U.S. dollars, the “U.K.” are to the United Kingdom and “euros” or “€” are to the official currency of the Eurozone.

Description of Business and Organization

~~NCLH is~~We are a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. ~~We have 24~~As of September 30, 2017, we had 25 ships with approximately ~~46,500 Berths including Sirena, previously under a Bareboat Charter, which joined our Oceania Cruises’ fleet in April 2016 and Seven Seas Explorer which was delivered in June 2016.~~50,400 Berths. We ~~will~~plan to introduce ~~four~~seven additional ships through 2025 and we have an option to ~~our fleet through 2020. Norwegian Joy,~~introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. Norwegian Bliss and ~~one~~an additional Breakaway Plus Class Ship isare on order for delivery in the spring of ~~2017, the spring of~~ 2018 and ~~the~~ fall of 2019, respectively. AnWe have an Explorer Class Ship is on order for delivery in the winter of 2020. Project Leonardo will introduce an additional four ships with expected delivery dates through 2025. These additions to our fleet (exclusive of the option for two additional ships) will increase our total Berths to approximately ~~59,000.~~72,300.

Summary of Significant Accounting Policies

Basis of Presentation

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

Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, ~~2015,~~2016, which are included in our most ~~recently filed~~recent Annual Report on Form ~~10-K.~~10-K filed with the Securities and Exchange Commission.

Reclassification

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

Earnings Per Share

A reconciliation between basic and diluted earnings per share was as follows (in thousands, except share and per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Net income	$	342,378	$	251,787	$	560,853	$	388,825	$	400,692	$	342,378	$	661,075	$	560,853
Basic weighted-average shares outstanding		227,096,142		227,384,616		227,102,560		225,805,901		228,267,307		227,096,142		227,891,916		227,102,560
Dilutive effect of share awards		502,465		2,890,140		757,057		4,054,999		1,549,649		502,465		1,265,341		757,057
Diluted weighted-average shares outstanding		227,598,607		230,274,756		227,859,617		229,860,900		229,816,956		227,598,607		229,157,257		227,859,617
Basic earnings per share	$	1.51	$	1.11	$	2.47	$	1.72	$	1.76	$	1.51	$	2.90	$	2.47
Diluted earnings per share	$	1.50	$	1.09	$	2.46	$	1.69	$	1.74	$	1.50	$	2.88	$	2.46

~~Revenue~~For the three months ended September 30, 2017 and ~~Expense Recognition~~2016, a total of 4.8 million and 8.4 million shares, respectively; and for the nine months ended September 30, 2017 and 2016, a total of 5.9 million and 7.4 million shares, respectively, have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive.

Deposits received from guests for future voyages are recorded as advance ticket sales and are subsequently recognized as passenger ticket revenue along with onboard and other revenue, and all associated direct costs of a voyage are recognized as cruise operating expenses on a pro-rata basis over the period of the voyage. Guest cancellation fees are recognized in passenger ticket revenue in the month of the cancellation. Certain of our product offerings are accounted for under the guidance included within multi-element arrangements and result in an allocation of the fair value between passenger ticket revenue and onboard and other revenue.

Revenue and Expense Recognition

Revenue and expenses include port fees and taxes. The amounts included on a gross basis are ~~$80.3~~$94.8 million and ~~$70.1~~$80.3 million for the three months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and ~~$214.3~~$246.9 million and ~~$184.4~~$214.3 million for the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

Foreign Currency

The majority of our transactions are settled in U.S. ~~dollars. We translate assets~~dollars and ~~liabilities~~the functional currency of our foreign subsidiaries ~~at exchange rates in effect at~~is the ~~balance sheet date.~~U.S. dollar. Gains or losses resulting from transactions denominated in other currencies are recognized in ~~our consolidated statements of operations within other expense.~~income at each balance sheet date. We recognized losses of ~~$1.5~~$4.0 million and ~~gains of $3.1~~$1.4 million for the three months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and losses of ~~$1.9~~$14.8 million and ~~gains of $8.8~~$1.8 million for the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

Depreciation and Amortization Expense

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

~~Goodwill~~

We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable. Based on the recent performance of the Oceania Cruises’ reporting unit, we performed an interim Step 1 Test which consists of a combined approach using the expected future cash flows and market multiples to determine the fair value of the reporting unit. We determined that there was no impairment of goodwill as the Step 1 Test supports the carrying value of the reporting unit.

Recently Issued Accounting Pronouncements

In August ~~2016,~~2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12.The objectives of this ASU are to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. We are currently evaluating the effect that the adoption of this ASU will have on our financial statements.

In January 2017, the FASB issued ASU No. 2017-04 which simplifies the test for goodwill impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The guidance is effective for annual or any interim goodwill impairment tests in years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect to early adopt this guidance. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.

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

In May 2016, the FASB issued ASU No. 2016-12 which addresses improvements to the guidance on revenue from contracts from customers regarding collectibility, noncash consideration, and completed contracts at transition. Additionally, it provides a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The effective date of this guidance is upon adoption of ASU No. 2014-09 which is presented below. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.

In May 2016, the FASB issued ASU No. 2016-11 which is a rescission of Securities and Exchange Commission guidance related to the issuance of ASU No. 2014-09 which is presented below. The effective date of this guidance is upon adoption of ASU No. 2014-09. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10 which does not change the core principle of the guidance in ASU No. 2014-09 but clarifies two aspects: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The effective date of this guidance is upon adoption of ASU No. 2014-09. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09 to improve multiple aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods with early adoption permitted. We do not believe that the adoption of this guidance will be material to our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The ASU requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The ASU further modifies lessors’ classification criteria for leases and the accounting for sales-type and direct financing leases. The ASU will also require qualitative and quantitative disclosures designed to give financial statement users additional information on the amount, timing, and uncertainty of cash flows arising from leases. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption permitted. The ASU is to be applied using a modified retrospective approach. ~~We are currently evaluating~~To evaluate the impact of the adoption of this guidance, ~~to our consolidated financial statements.~~

In July 2015, the FASB issued ASU No. 2015-11 to simplify the measurement of inventory for all entities. This applies to all inventory that is measured using either the first-in, first-out or average cost method. The guidance requires an entity to measure inventory at the lower of cost and net realizable value. The guidance must be applied prospectively and will be effective for our interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of an interim or annual reporting period. Wewe are currently reviewing our existing leases and evaluating contracts to determine what might be considered a lease under the ~~impact of the adoption of this guidance to our consolidated financial statements.~~

In April 2015, the FASB issued ASU No. 2015-05 to clarify a customer’s accounting for fees paid in a cloud computing arrangement. The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license or if the arrangement should be accounted for as a service contract. This guidance will impact the accounting of software licenses but will not change a customer’s accounting for service contracts. The guidance will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. We have adopted this guidance and there has not been an impact to our consolidated financial statements.new guidance.

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

Intangible Assets

The carrying amounts of intangible assets subject to amortization are included within other long-term assets. As of September 30, 2017, the carrying amount of the indefinite-lived license is included in prepaid expenses and other assets as it is held for sale. The gross carrying amounts of intangible ~~assets included within other long-term~~ 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 ~~table~~tables (in thousands, except amortization period):

	September 30, 2016									September 30, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted- Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted- Average Amortization Period (Years)
Customer relationships	$	120,000	$	(31,326	)	$	88,674		6.0	$	120,000	$	(59,298	)	$	60,702		6.0
Licenses		3,368		(631	)		2,737		5.6		3,368		(1,382	)		1,986		5.6
Non-compete agreements		660		(330	)		330		1.0		660		(660	)		—		1.0
Total intangible assets subject to amortization	$	124,028	$	(32,287	)	$	91,741			$	124,028	$	(61,340	)	$	62,688
License (Indefinite-lived)	$	4,427	$	—		$	—			$	4,427

	December 31, 2015									December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted- Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted- Average Amortization Period (Years)
Customer relationships	$	120,000	$	(15,527	)	$	104,473		6.0	$	120,000	$	(36,593	)	$	83,407		6.0
Backlog		70,000		(70,000	)		—		1.0
Licenses		3,368		(208	)		3,160		5.6		3,368		(807	)		2,561		5.6
Non-compete agreements											660		(495	)		165		1.0
Total intangible assets subject to amortization	$	193,368	$	(85,735	)	$	107,633			$	124,028	$	(37,895	)	$	86,133
License (Indefinite-lived)	$	4,427	$	—		$	—			$	4,427

The aggregate amortization expense is as follows (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Amortization expense $ 5,601 $ 20,951 $ 16,552 $ 60,172

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Amortization expense	$	7,780	$	5,601	$	23,445	$	16,552

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

Year ended December 31,	Amortization Expense		Amortization Expense
2017	$	31,067
2018		26,163	$	26,163
2019		18,489		18,489
2020		9,906		9,906
2021		75		75
2022				75

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) for the nine months ended September 30, ~~2016~~2017 was as follows (in thousands):

	Accumulated Other Comprehensive Income (Loss)			Change Related to Cash Flow Hedges			Change Related to Shipboard Retirement Plan			Accumulated Other Comprehensive Income (Loss)			Change Related to Cash Flow Hedges			Change Related to Shipboard Retirement Plan
Accumulated other comprehensive income (loss) at beginning of period	$	(412,650	)	$	(405,298	)	$	(7,352	)	$	(314,473	)	$	(307,618	)	$	(6,855	)
Current period other comprehensive income before reclassifications		112,508			112,508			—			221,512			221,512			—
Amounts realized and reclassified into earnings		76,981			76,658	(1)		323	(2)
Amounts reclassified into earnings											31,906			31,593	(1)		313	(2)
Accumulated other comprehensive income (loss) at end of period	$	(223,161	)	$	(216,132	)(3)	$	(7,029	)	$	(61,055	)	$	(54,513	)(3)	$	(6,542	)

(1)

We refer you to Note 7—6— “Fair Value Measurements and Derivatives” for the affected line items in the consolidated statements of operations.

(2)

Amortization of prior-service cost and actuarial loss reclassified to payroll and related expense.

(3)

Includes ~~$67.2~~$23.6 million of loss expected to be reclassified into earnings in the next 12 months.

Accumulated other comprehensive income (loss) for the nine months ended September 30, ~~2015~~2016 was as follows (in thousands):

	Accumulated Other Comprehensive Income (Loss)			Change Related to Cash Flow Hedges			Change Related to Shipboard Retirement Plan			Accumulated Other Comprehensive Income (Loss)			Change Related to Cash Flow Hedges			Change Related to Shipboard Retirement Plan
Accumulated other comprehensive income (loss) at beginning of period	$	(242,642	)	$	(234,188	)	$	(8,454	)	$	(412,650	)	$	(405,298	)	$	(7,352	)
Current period other comprehensive loss before reclassifications		(138,501	)		(138,501	)		—
Amounts realized and reclassified into earnings		61,940			61,582	(1)		358	(2)
Current period other comprehensive income before reclassifications											112,508			112,508			—
Amounts reclassified into earnings											76,981			76,658	(1)		323	(2)
Accumulated other comprehensive income (loss) at end of period	$	(319,203	)	$	(311,107	)	$	(8,096	)	$	(223,161	)	$	(216,132	)	$	(7,029	)

(1)

We refer you to Note 7—6— “Fair Value Measurements and Derivatives” for the affected line items in the consolidated statements of operations.

(2)

Amortization of prior-service cost and actuarial loss reclassified to payroll and related expense.

Property and Equipment, net

Property and equipment, net increased ~~$595.4~~$799.1 million for the nine months ended September 30, ~~2016~~2017 primarily due to the delivery of ~~Seven Seas Explorer~~Norwegian Joy, ships under construction and ship improvement projects. As of September 30, 2017, in connection with the ~~refurbishment~~pending sale of ~~several ships.~~our Hawaii land-based operations, we had $21.5 million of assets included in prepaid expenses and other, which are primarily related to property and equipment, and $7.7 million of liabilities included in accrued expenses and other liabilities. These assets and liabilities are classified as held for sale. Accordingly, for the three months ended September 30, 2017, these assets were measured at fair value less costs to sell which resulted in an impairment on assets of $2.9 million which was included in property and equipment and depreciation and amortization. The fair value was based on the purchase price which represents the observable market value of these operations which are level 2 within the fair value hierarchy. The sale was consummated on October 31, 2017. Upon the closing of the transaction, we accepted a promissory note from the buyer for approximately $9.7 million.

~~Long-Term Debt~~

In June 2016, NCLC and Voyager Vessel Company, LLC, indirect subsidiaries of NCLH, entered into a Second Amended and Restated Credit Agreement (the “Amended Senior Secured Credit Facility”) with a syndicate of banks which restates the Amended and Restated Credit Agreement, dated as of October 31, 2014 (the “Existing Senior Secured Credit Facility”). The Amended Senior Secured Credit Facility amends the Existing Senior Secured Credit Facility to, among other things, (i) (a) increase the aggregate amount of commitments under the Revolving Loan Facility from $625.0 million to $750.0 million (the “New Revolving Loan Facility”) and (b) increase the aggregate principal amount outstanding under the $1.38 billion term loan facility from $1.16 billion to $1.51 billion (the “New Term Loan A Facility”) and (ii) extend the maturity of the New Term Loan A Facility and the New Revolving Loan Facility to June 2021 (the “Extended Maturity Date”). The agreement incorporates a springing maturity date for the New Term Loan A Facility and the New Revolving Loan Facility such that both mature on (A) the earlier date that is 91 days prior to the final maturity date of NCLC’s $680.0 million aggregate principal amount of 5.25% senior unsecured notes due 2019 (the “5.25% Notes”) if on such date (x) the 5.25% Notes have not been repaid (or refinanced with indebtedness maturing after the Extended Maturity Date) by such date and (y) free liquidity does not exceed the aggregate principal amount of outstanding 5.25% Notes by at least $50.0 million and (B) the earlier date that is 91 days prior to the final maturity date of NCLC’s $600.0 million aggregate principal amount of 4.625% senior unsecured notes due 2020 (the “4.625% Notes”) if on such date (x) the 4.625% Notes have not been repaid (or refinanced with indebtedness maturing after the Extended Maturity Date) by such date and (y) free liquidity does not exceed the aggregate principal amount of outstanding 4.625% Notes by at least $50.0 million. NCLC used proceeds of approximately $1.59 billion from the New Term Loan A Facility and the New Revolving Loan Facility to prepay the entire outstanding principal amount of the Revolving Loan Facility, the $1.38 billion term loan facility and a $350.0 million term loan facility.

The New Term Loan A Facility and New Revolving Loan Facility bear interest at a rate per annum of (a) an adjusted LIBOR rate or (b) a base rate determined by reference to the greatest of (i) the federal funds rate plus 0.50%, (ii) the prime rate in effect on such day and (iii) the adjusted LIBOR rate plus 1%, in each case plus an applicable margin that is determined by reference to a total leverage ratio, with an applicable margin of between 2.25% and 1.50% with respect to Eurocurrency loans and between 1.25% and 0.50% with respect to base rate loans. The initial applicable margin for borrowings is 2.25% with respect to Eurocurrency borrowings and 1.25% with respect to base rate borrowings.

The New Term Loan A Facility is required to be repaid in quarterly installments that commenced in September 2016, in a principal amount equal to (a) in the case of installments payable on or prior to June 6, 2018, 1.25% of the loans outstanding immediately after the closing date under the New Term Loan A Facility and (b) in the case of installments payable after June 6, 2018, 2.50% of the loans outstanding immediately after the closing date under the New Term Loan A Facility, with the remaining unpaid principal amount of loans under the New Term Loan A Facility due and payable in full at maturity on June 6, 2021. Principal amounts outstanding under the New Revolving Loan Facility are due and payable in full at maturity on June 6, 2021, subject to earlier repayment pursuant to the springing maturity date described above.

In addition to paying interest on outstanding principal under the borrowings, we are obligated to pay a quarterly commitment fee at a rate determined by reference to a total leverage ratio, with a maximum commitment fee of 40% of the applicable margin for Eurocurrency loans.

In June 2016, we took delivery of Seven Seas Explorer. To finance the payment due upon delivery, we had export financing in place for 80% of the contract price. The associated $373.6 million term loan bears interest at 3.43% with a maturity date of June 30, 2028. Principal and interest payments are payable semiannually.

NCLC, a subsidiary of NCLH, entered into a Supplemental Agreement, dated July 26, 2016, by and among NCLC, as guarantor, Breakaway Four, Ltd. (the “Borrower”), as borrower, NCL International Ltd., as shareholder, and KfW IPEX-Bank GmbH (“KfW”), as facility agent and lender (the “Credit Agreement Amendment”), which amends the Credit Agreement, dated as of October 12, 2012, by and among NCLC, as parent, the Borrower and KfW, as facility agent and lender (the “Existing Credit Agreement”). The Credit Agreement Amendment amends the Existing Credit Agreement to, among other things, increase the aggregate principal amount of commitments under the multi-draw term loan credit facility from €590.5 million to €729.9 million. Except as provided in the Credit Agreement Amendment, all other provisions of the Existing Credit Agreement remain in full force.

Fair Value Measurements and Derivatives

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

Fair Value Hierarchy

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

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

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

Level 3

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

Derivatives

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

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

The following table sets forth our derivatives measured at fair value and discloses the balance sheet location (in thousands):

		Asset				Liability						Asset				Liability
	Balance Sheet location	September 30, 2016		December 31, 2015		September 30, 2016			December 31, 2015		Balance Sheet location	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Fuel swaps designated as hedging instruments
	Prepaid expenses and other assets	$	13,740	$	—	$	—		$	—	Prepaid expenses and other assets	$	5,796	$	20,288	$	—	$	—
	Other long-term assets		3,462		—		145			—	Other long-term assets		4,636		—		1,903		—
	Accrued expenses and other liabilities		—		—		73,923			128,740	Accrued expenses and other liabilities		4,237		—		26,069		44,271
	Other long-term liabilities		7,167		—		65,529			132,494	Other long-term liabilities		7,724		13,237		17,578		38,608
Foreign currency forward contracts designated as hedging instruments
	Prepaid expenses and other assets		10,153		—		1,381			—	Prepaid expenses and other assets		41,983		—		1,354		—
	Other long-term assets		14,980		3,446		2,363			1,370	Other long-term assets		65,780		14		—		—
	Accrued expenses and other liabilities		1,065		—		8,930			8,737	Accrued expenses and other liabilities		—		—		—		61,788
	Other long-term liabilities		1,567		551		4,943			24,181	Other long-term liabilities		—		—		—		88,920
Foreign currency collar not designated as a hedging instrument
	Accrued expenses and other liabilities		—		—		—			42,993
Interest rate swaps designated as hedging instruments
	Accrued expenses and other liabilities		—		—		3,858	��		4,079	Accrued expenses and other liabilities		—		—		1,876		3,331
	Other long-term liabilities		—		—		2,594			3,395	Other long-term liabilities		—		—		—		1,151

The fair values of swap and forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The Company determines the value of options and collars utilizing an option pricing model based on inputs that are either readily available in public markets or can be derived from information available in publicly quoted markets. The option pricing model used by the Company is an industry standard model for valuing options and is used by the broker/dealer community. The inputs to this option pricing model are the option strike price, underlying price, risk-free rate of interest, time to expiration, and volatility. The fair value of option contracts considers both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. Our derivatives and financial instruments were categorized as Level 2 in the fair value hierarchy, and we had no derivatives or financial instruments categorized as Level 1 or Level 3.

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

1110

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

September 30, 2016	Gross Amounts		Gross Amounts Offset			Total Net Amounts		Gross Amounts Not Offset			Net Amounts
September 30, 2017													Gross Amounts		Gross Amounts Offset			Total Net Amounts		Gross Amounts Not Offset			Net Amounts
Assets	$	42,335	$	(3,889	)	$	38,446	$	(11,179	)	$	27,267	$	118,195	$	(3,257	)	$	114,938	$	(100,582	)	$	14,356
Liabilities		159,777		(9,799	)		149,978		(10,802	)		139,176		45,523		(11,961	)		33,562		(1,876	)		31,686

December 31, 2015	Gross Amounts		Gross Amounts Offset			Total Net Amounts		Gross Amounts Not Offset			Net Amounts
December 31, 2016													Gross Amounts		Gross Amounts Offset			Total Net Amounts		Gross Amounts Not Offset			Net Amounts
Assets	$	3,446	$	(1,370	)	$	2,076	$	(2,043	)	$	33	$	20,302	$	—		$	20,302	$	(14	)	$	20,288
Liabilities		344,619		(551	)		344,068		(336,645	)		7,423		238,069		(13,237	)		224,832		(155,190	)		69,642

Fuel Swaps

As of September 30, ~~2016,~~2017, we had fuel swaps maturing through December 31, 2020 which are used to mitigate the financial impact of volatility in fuel prices pertaining to approximately ~~1.7~~1.4 million metric tons of our projected fuel purchases.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Gain (loss) recognized in other comprehensive income (loss) – effective portion $ (157 ) $ (101,056 ) $ 76,145 $ (69,724 )
Loss recognized in other expense – ineffective portion (2,602 ) (1,580 ) (11,353 ) (10,825 )
Amount reclassified from accumulated other comprehensive income (loss) into fuel expense 16,427 11,670 68,004 47,503

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Gain (loss) recognized in other comprehensive income – effective portion	$	30,452	$	(157	)	$	(635	)	$	76,145
Gain (loss) recognized in other income (expense), net – ineffective portion		496		(2,602	)		(305	)		(11,353	)
Amount reclassified from accumulated other comprehensive income (loss) into fuel expense		9,795		16,427			26,382			68,004

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

The effects on the consolidated financial statements of the fuel swaps which were dedesignated and recognized into earnings were as follows (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Loss recognized in other expense $ (179 ) $ (4,716 ) $ (271 ) $ (4,716 )
Amount reclassified from accumulated other comprehensive income (loss) into other expense — — 2,994 10,000

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Loss recognized in other income (expense), net	$	—	$	(179	)	$	—	$	(271	)
Amount reclassified from accumulated other comprehensive income (loss) into other income (expense), net		—		—			—		2,994

~~Fuel Collars~~

~~We had fuel collars that matured and were used to mitigate the financial impact of volatility in fuel prices of our fuel purchases.~~

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Amount reclassified from accumulated other comprehensive income (loss) into fuel expense $ — $ — $ — $ 248

Foreign Currency Options

We had foreign currency options that matured which consisted of call options with deferred premiums. These options were used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. If the spot rate at the date the ships were delivered was less than the strike price under these option contracts, we would have paid the deferred premium and would not exercise the foreign currency options.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense $ 330 $ 330 $ 990 $ 990

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense	$	330	$	330	$	990	$	990

Foreign Currency Forward Contracts

As of September 30, ~~2016,~~2017, we had foreign currency forward contracts which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. The notional amount of our foreign currency forward contracts was ~~€2.3~~€1.8 billion, or ~~$2.6~~$2.1 billion based on the euro/U.S. dollar exchange rate as of September 30, ~~2016.~~2017.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Gain (loss) recognized in other comprehensive income (loss) – effective portion $ 36,390 $ (1,519 ) $ 39,001 $ (61,966 )
Loss recognized in other expense – ineffective portion (190 ) (3 ) (181 ) (10 )
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense 665 (64 ) 1,966 (191 )

~~We had foreign currency forward contracts that matured and were used to mitigate the volatility of foreign currency exchange rates related to financial instruments denominated in foreign currencies.~~

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Gain recognized in other comprehensive income – effective portion	$	66,849	$	36,390		$	221,913		$	39,001
Loss recognized in other income (expense), net – ineffective portion		—		(190	)		(66	)		(181	)
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense		918		665			2,192			1,966

The effects on the consolidated financial statements of foreign currency forward contracts which were not designated as cash flow hedges were as follows (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Gain (loss) recognized in other expense $ — $ 585 $ (6,133 ) $ 684

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Loss recognized in other income (expense), net	$	—	$	—	$	—	$	(6,133	)

Foreign Currency ~~Collars~~Collar

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

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense	$	(91	)	$	(91	)	$	(273	)	$	(273	)

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Gain (loss) recognized in other expense $ — $ 955 $ 10,312 $ (18,648 )

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Gain recognized in other income (expense), net	$	—	$	—	$	—	$	10,312

Interest Rate Swaps

As of September 30, ~~2016,~~2017, we had interest rate swap agreements to hedge our exposure to interest rate movements and to manage our interest expense. The notional amount of outstanding debt associated with the interest rate swap agreements was ~~$339.8~~$237.2 million as of September 30, ~~2016.~~2017.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Gain (loss) recognized in other comprehensive income (loss)– effective portion $ 818 $ (2,652 ) $ (2,638 ) $ (6,811 )
Gain (loss) recognized in other expense – ineffective portion — (9 ) 3 (21 )
Amount reclassified from accumulated other comprehensive income (loss) into interest expense, net 996 1,287 2,977 3,305

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017		2016
Gain (loss) recognized in other comprehensive income – effective portion	$	(25	)	$	818	$	234	$	(2,638	)
Gain recognized in other income (expense), net – ineffective portion		—			—		—		3
Amount reclassified from accumulated other comprehensive income (loss) into interest expense, net		691			996		2,301		2,977

~~We had an interest rate swap that matured which was used to mitigate our exposure to interest rate movements and to manage our interest expense.~~

~~The effect on the consolidated financial statements of the interest rate swap contract which was not designated as a hedging instrument was as follows (in thousands):~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Loss recognized in other expense $ — $ — $ — $ (2 )

Long-Term Debt

As of September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the fair value of our long-term debt, including the current portion, was ~~$6.5 billion~~$6,796.4 million and $6,525.7 million, respectively, which was ~~$16.4~~$62.0 million ~~higher~~ and ~~$6.6~~$11.6 million ~~lower,~~higher, respectively, than the carrying values. The difference between the fair value and carrying value of our long-term debt is due to our fixed and variable rate debt obligations carrying interest rates that are above or below market rates at the measurement dates. The fair value of our long-term debt was calculated based on estimated rates for the same or similar instruments with similar terms and remaining maturities resulting in Level 2 inputs in the fair value hierarchy. Market risk associated with our long-term variable rate debt is the potential increase in interest expense from an increase in interest rates. The calculation of the fair value of our long-term debt is considered a Level 2 input. We refer you to Note 12— “Subsequent Events” for further information about our long-term debt.

Other

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

8.7.

Employee Benefits and Compensation Plans

Share-Based Compensation

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

Share Option Awards

~~On March 1, 2016, we granted 1.0 million share option awards to our employees at an exercise price of $50.31 with a contractual term of ten years. The share options vest equally over three years.~~

The following is a summary of option activity under ~~our share option plan~~NCLH’s Amended and Restated 2013 Performance Incentive Plan for the nine months ended September 30, ~~2016~~2017 (excludes the impact of ~~364,584~~208,335 previously awarded performance-based options as no grant date has been established):

	Number of Share Option Awards								Weighted-Average Exercise Price Per Share						Weighted- Average Contractual Term		Aggregate Intrinsic Value		Number of Share Option Awards								Weighted-Average Exercise Price						Weighted- Average Contractual Term		Aggregate Intrinsic Value
	Time- Based Awards			Performance- Based Awards			Market- Based Awards		Time- Based Awards		Performance- Based Awards		Market- Based Awards		(years)		(in thousands)		Time- Based Awards			Performance- Based Awards			Market- Based Awards		Time- Based Awards		Performance- Based Awards		Market- Based Awards		(years)		(in thousands)
Outstanding as of December 31, 2015		7,702,071			432,752			208,333	$	47.35	$	19.00	$	59.43		8.59	$	104,864
Outstanding as of January 1, 2017																				7,775,058			432,978			208,333	$	48.04	$	23.86	$	59.43		7.81	$	35,429
Granted		1,095,000			52,083			—		49.88		59.43		—						—			156,249			—		—		59.43		—		—		—
Exercised		(169,527	)		(51,857	)		—		27.64		19.00		—						(704,339	)		(83,288	)		—		33.92		19.00		—		—		—
Forfeited and cancelled		(583,492	)		—			—		49.46		—		—						(385,070	)		(93,749	)		—		54.42		59.43		—		—		—
Outstanding as of September 30, 2016		8,044,052			432,978			208,333	$	47.96	$	23.86	$	59.43		8.07	$	24,633
Outstanding as of September 30, 2017																				6,685,649			412,190			208,333	$	49.16	$	30.24	$	59.43		7.22	$	54,689

Restricted Ordinary Share Awards

The following is a summary of restricted NCLH ordinary share activity for the nine months ended September 30, ~~2016:~~2017:

	Number of Time-Based Awards			Weighted- Average Grant Date Fair Value Per Share		Number of Time-Based Awards			Weighted- Average Grant Date Fair Value
Non-vested as of January 1, 2016		43,653		$	5.87
Non-vested as of January 1, 2017							16,872		$	7.63
Granted		—			—		—			—
Vested		(26,118	)		4.81		(15,702	)		4.94
Forfeited or expired		(352	)		2.50		—			—
Non-vested and expected to vest as of September 30, 2016		17,183		$	7.55
Non-vested and expected to vest as of September 30, 2017							1,170		$	43.70

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Restricted Share Unit Awards

On March 1, ~~2016, we~~2017, NCLH granted ~~1.2~~1.7 million time-based restricted share unit awards to our employees which vest equally over three years. Additionally, on March 1, 2017, NCLH awarded 121,000 performance-based restricted share units to certain members of our management team which vest upon the achievement of certain pre-established performance targets.

The following is a summary of restricted share unit activity for the nine months ended September 30, ~~2016~~2017 (excludes the impact of ~~87,500~~329,146 previously awarded performance-based restricted share units as no grant date was established):

	Number of Time-Based Awards			Weighted- Average Grant Date Fair Value Per Share		Number of Performance- Based Awards			Weighted- Average Grant Date Fair Value Per Share		Number of Market- Based Awards		Weighted- Average Grant Date Fair Value Per Share		Number of Time-Based Awards			Weighted- Average Grant Date Fair Value		Number of Performance- Based Awards			Weighted- Average Grant Date Fair Value		Number of Market- Based Awards		Weighted- Average Grant Date Fair Value
Non-vested as of January 1, 2016		150,000		$	59.43		—		$	—		50,000	$	59.43
Non-vested as of January 1, 2017																1,305,335		$	50.38		—		$	—		50,000	$	59.43
Granted		1,328,490			49.62		12,500			50.00		—		—		1,803,327			51.13		37,500			49.76		—		—
Vested		(37,500	)		59.43		(12,500	)		50.00		—		—		(447,503	)		50.55		(15,000	)		49.76		—		—
Forfeited or expired		(83,655	)		50.51		—			—		—		—		(70,179	)		50.71		(22,500	)		49.76		—		—
Non-vested and expected to vest as of September 30, 2016		1,357,335		$	50.38		—		$	—		50,000	$	59.43
Non-vested and expected to vest as of September 30, 2017																2,590,980			50.86		—			—		50,000		59.43

The share-based compensation expense for the three months ended September 30, ~~2016~~2017 was ~~$16.8~~$21.5 million of which ~~$15.0~~$18.6 million was recorded in marketing, general and administrative expense and ~~$1.8~~$2.9 million was recorded in payroll and related expense. The share-based compensation expense for the nine months ended September 30, ~~2016~~2017 was ~~$48.3~~$63.7 million of which ~~$42.7~~$57.1 million was recorded in marketing, general and administrative expense and ~~$5.6~~$6.6 million was recorded in payroll and related expense.

9.8.

Commitments and Contingencies

Ship Construction Contracts

Project Leonardo will introduce an additional four ships with expected delivery dates through 2025 and we have an option to introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. These four ships are each approximately 140,000 Gross Tons with approximately 3,300 Berths. We have ~~Norwegian Joy, Norwegian Bliss and one additional Breakaway Plus~~an Explorer Class Ship on order ~~with Meyer Werft shipyard~~for delivery in the winter of 2020. This ship is approximately 55,000 Gross Tons and 750 Berths. We have two Breakaway Plus Class Ships on order for delivery in the spring of ~~2017, spring of~~ 2018 and ~~the~~ fall of 2019, respectively. These ships ~~will be amongst the largest in our fleet, reaching~~are approximately ~~164,600~~168,000 Gross ~~Tons.~~Tons each with approximately 4,000 Berths each. The combined contract price of these ~~three~~seven ships iswas approximately ~~€2.6~~€5.5 billion, or ~~$2.9~~$6.5 billion based on the euro/U.S. dollar exchange rate as of September 30, ~~2016.~~2017. We have export credit financing in place that provides financing for 80% of their contract prices. We have an Explorer Class Ship on order with Fincantieri shipyard with an original contract price of approximately €422.0 million, or approximately $474.1 million based on the euro/U.S. dollar exchange rate as of September 30, 2016. We have export credit financing in place that provides financing for 80% of theeach ship’s contract price. ~~The Explorer Class Ship is~~For ships expected to be delivered inafter 2023, the ~~winter of 2020.~~contract price is subject to adjustment under certain circumstances.

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

Litigation

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

Nonetheless, the ultimate outcome of ~~these~~the 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.

~~10.~~9.

~~Restructuring Costs~~Other Income (Expense), Net

~~Due~~For the three months ended September 30, 2017, other income (expense), net was a $3.3 million expense, primarily due to foreign currency exchange losses. For the ~~Acquisition of Prestige, a number of employee positions were consolidated. As of~~three months ended September 30, 2016, ~~we had no accrual balance for restructuring costs for severance~~the $5.3 million expense was due to foreign currency exchange and ~~other employee-related costs. The~~fuel swap derivative losses. For the nine months ended September 30, 2017, the $11.7 million expense ~~of $0.1 million for~~included foreign currency exchange losses partially offset by a gain from an insurance claim. For the nine months ended September 30, 2016, isthe $13.3 million expense included ~~in marketing, general and administrative expense.~~losses on fuel swap derivatives partially offset by gains on foreign exchange forward derivatives.

1514

10.

Income Tax Expense

~~The following table summarizes changes in~~

Income tax expense for 2017 reflects a tax benefit of $11.6 million associated with the ~~accrual for restructuring costs (in thousands):~~reversal of prior years’ tax contingency reserves due to the expiration of the statute of limitations.

Restructuring costs
Accrued expense balance as of December 31, 2015 $ (4,144 )
Amounts paid 4,254
Additional accrued expense (110 )
Accrued expense balance as of September 30, 2016 $ —

11.

Supplemental Cash Flow Information

For the nine months ended September 30, 2017 and 2016, we had non-cash investing activities in connection with property and equipment of $15.2 million and $22.3 million, ~~and for~~respectively. For the nine months ended September 30, ~~2015,~~2017, we had non-cash investing activities in connection with capital leases of ~~$28.5~~$13.3 million.

12.

Subsequent Events

NCLC, a subsidiary of NCLH, entered into a Third Amended and Restated Credit Agreement, dated as of October 10, 2017, with a subsidiary of NCLC, as co-borrower, JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent and as collateral agent, and a syndicate of other banks party thereto as joint bookrunners, arrangers, codocumentation agents and lenders (the “Amended Senior Secured Credit Facility”), which amends and restates that certain Second Amended and Restated Credit Agreement, dated as of June 6, 2016, by and among NCLC, JPM, as administrative agent and as collateral agent, and a syndicate of other banks party thereto as joint bookrunners, arrangers, co-documentation agents and lenders (the “Existing Senior Secured Credit Facility”). The Amended Senior Secured Credit Facility amends the Existing Senior Secured Credit Facility to, among other things, (a) reprice and increase the existing $750 million revolving credit facility with a new $875 million revolving credit facility (the “New Revolving Loan Facility”), (b) reprice the approximately $1,412 million principal amount outstanding under the existing senior secured term A facility (the “New Term A Loan Facility”), and ~~capital expenditures~~(c) add a new $375 million term B loan facility due 2021 (the “New Term B Loan Facility”). The applicable margin under the New Term A Loan Facility and New Revolving Loan Facility is determined by reference to a total leverage ratio, with an applicable margin of ~~$6.5 million.~~ between 2.00% and 1.25% with respect to Eurocurrency loans and between 1.00% and 0.25% with respect to base rate loans. The margin for borrowings under the New Term A Loan Facility and New Revolving Loan Facility is 1.75% with respect to Eurocurrency borrowings and 0.75% with respect to base rate borrowings. The applicable margin under the New Term B Loan Facility is 1.75% with respect to Eurocurrency loans and 0.75% with respect to base rate loans. NCLC used proceeds from the New Term B Loan Facility and cash on hand for the Redemption (as defined below).

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

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

Cautionary Statement Concerning Forward-Looking Statements

Certain statements in this report constitute forward-looking statements within the meaning of the U.S. federal securities laws intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained, or incorporated by reference, in this report, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects and objectives of management for future operations (including development plans and objectives relating to our activities), are forward-looking statements. Many, but not all, of these statements can be found by looking for words like “expect,” “anticipate,” “goal,” “project,” “plan,” “believe,” “seek,” “will,” “may,” “forecast,” “estimate,” ~~“intend,”~~“intend” and “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:

	•	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;
	•	adverse events impacting the security of travel, such as terrorist acts, armed conflict and threats thereof, acts of piracy, and other international events;
	•	the risks and increased costs associated with operating internationally;
	•	~~an impairment of~~ our ~~tradenames or goodwill which could adversely affect our financial condition~~expansion into and ~~operating results;~~
	•	~~our efforts to expand our business into~~investments in new markets;
	•	~~adverse events impacting the security of travel, such as terrorist acts, acts of piracy, armed conflict and threats thereof and other international events;~~
	•	breaches in data security or other disturbances to our information technology and other networks;
	•	the spread of epidemics and viral outbreaks;
	•	adverse incidents involving cruise ships;
	•	changes in fuel prices and/or other cruise operating costs;
	•	any impairment of our tradenames or goodwill;
	•	our hedging strategies;
	•	our inability to obtain adequate insurance coverage;
	•	our substantial indebtedness, including the ability to raise additional capital to fund our operations, and to generate the necessary amount of cash to service our existing debt;
	•	restrictions in the agreements governing our indebtedness that limit our flexibility in operating our business;
	•	the significant portion of our assets pledged as collateral under our existing debt agreements and the ability of our creditors to accelerate the repayment of our indebtedness;
	•	~~our ability to incur significantly more debt despite our substantial existing indebtedness;~~
	•	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;
	•	fluctuations in foreign currency exchange rates;
	•	overcapacity in key markets or globally;
	•	our inability to recruit or retain qualified personnel or the loss of key personnel;
	•	future changes relating to how external distribution channels sell and market our cruises;
	•	our reliance on third parties to provide hotel management services to certain ships and certain other services;
	•	delays in our shipbuilding program and ship repairs, maintenance and refurbishments;
	•	future increases in the price of, or major changes or reduction in, commercial airline services;
	•	seasonal variations in passenger fare rates and occupancy levels at different times of the year;
	•	our ability to keep pace with developments in technology;
	•	amendments to our collective bargaining agreements for crew members and other employee relation issues;
	•	the continued availability of attractive port destinations;
	•	pending or threatened litigation, investigations and enforcement actions;
	•	changes involving the tax and environmental regulatory regimes in which we operate; and
	•	other factors set forth under “Risk Factors” in our most recently filed Annual Report on Form 10-K, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and ~~“Item 1A. Risk Factors” in this report.~~Exchange Commission (the “SEC”).

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 ~~will~~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.

1716

Terminology

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

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

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

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

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

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

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

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

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

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

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

•Breakaway Class Ships.Norwegian Breakaway and Norwegian Getaway.

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

•Breakaway Plus Class ~~Ships.~~Ships~~The next generation of ships which are similar in design~~. Norwegian Escape, Norwegian Joy, Norwegian Bliss and ~~innovation to Breakaway Class Ships.~~a fourth ship on order.

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

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

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

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

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

•EPS. Earnings per share.

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

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

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

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

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

•Gross Yield. Total revenue per Capacity Day.

•~~Management NCL Corporation Units.~~ NCLC’s previously outstanding profits interests issued to management (or former management) of NCLC which were converted into units in NCLC. All Management NCL Corporation Units were exchanged for NCLH ordinary shares and restricted shares in the fourth quarter of 2014.

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

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

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

~~Table of Contents~~

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

•Net Yield. Net Revenue per Capacity Day.

•New Revolving Loan Facility. ~~$750.0~~$875.0 million senior secured revolving credit facility which amends the Existing Revolving Loan Facility, maturing on June 6, 2021, subject to an earlier springing maturity date as described in Note 6— “Long-Term Debt” in our consolidated financial statements included herein. The New Revolving Loan Facility amended and restated the Revolving Loan Facility.2021.

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

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

•~~Revolving Loan Facility~~Project Leonardo.. $625.0 million senior secured revolving credit facility which was to mature on May 24, 2018 and was amended and restated in June 2016 (such amendment and restatement is referred to herein as the New Revolving Loan Facility).The next generation of ships for our Norwegian brand.

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

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

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

Non-GAAP Financial Measures

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

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

We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance. We also believe that Adjusted EBITDA is a useful measure in determining our performance as it reflects certain operating drivers of our business, such as sales growth, operating costs, marketing, general and administrative expense and other operating income and expense. Adjusted EBITDA is not a defined term under ~~GAAP. Adjusted EBITDA~~GAAP nor is ~~not~~it intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments and it includes other supplemental adjustments.

In addition, Adjusted Net Revenue and Adjusted Net Yield, which exclude certain business combination accounting entries, are non-GAAP financial measures that we believe are useful as supplemental measures in evaluating the performance of our operating business and provide greater transparency into our results of operations. Adjusted Net Income and Adjusted EPS are non-GAAP financial measures that exclude certain amounts and are used to supplement GAAP net income and EPS. We use Adjusted Net Income and Adjusted EPS as key performance measures of our earnings performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparison to our historical performance. In addition, management uses Adjusted EPS as a performance measure for our incentive compensation. The amounts excluded in the presentation of these non-GAAP financial measures may vary from period to period; accordingly, our presentation of Adjusted Net Revenue, Adjusted Net Yield, Adjusted Net Income and Adjusted EPS may not be indicative of future adjustments or results. For example, for the ~~nine months~~year ended ~~September 30,~~December 31, 2016, we incurred ~~an $11.2~~$28.0 million ~~write-off, primarily due~~related to ~~deferred financing fees~~the extinguishment of debt due to the refinancing of certain credit facilities. We included ~~the deferred financing fees~~this as an adjustment in the reconciliation of Adjusted Net Income since ~~these amounts are~~the extinguishment of debt is not representative of our day-to-day operations and we have included ~~other write-offs of deferred financing fees as~~similar adjustments in prior ~~periods.~~periods; however, this adjustment did not occur and is not included in the periods presented within this Form 10-Q.

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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

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

Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, and includes revenue for service charges and air and land transportation to and from the ship to the extent guests purchase these items from us. Onboard and other revenue primarily consists of revenue from gaming, beverage sales, shore excursions, specialty dining, retail sales, spa services, photo services as well as certain Bareboat Charter revenue. We record onboard revenue from onboard activities we perform directly or that are performed by independent concessionaires, from which we receive a share of their revenue.

Our cruise operating expense is classified as follows:

Commissions, transportation and other primarily consists of direct costs associated with passenger ticket revenue. These costs include travel agent commissions, air and land transportation expenses, related credit card fees, costs associated with service charges, 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 that are incurred in connection with onboard and other revenue. These include costs incurred in connection with gaming, beverage sales and shore excursions.

Payroll and related consists of the cost of wages and benefits for shipboard employees and costs of certain inventory items, including food, for a third party that provides crew and other hotel services for certain ships.

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

Food consists of food costs for passengers and crew on certain ships.

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

Critical Accounting Policies

We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable. Based on the recent performance of the Oceania Cruises’ reporting unit, we performed an interim goodwill impairment evaluation. Based on that evaluation, we determined that there was no impairment of goodwill because its fair value exceeded its carrying value. However, if the fair value of that reporting unit declines in future periods, its goodwill may become impaired at that time. As of September 30, 2016, there was $523.0 million of goodwill for the Oceania Cruises’ reporting unit.

For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have made no significant changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

2019