Norwegian Cruise Line Holdings Ltd. 10-Q

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 ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 2020 2019 Revenue ​ ​ ​ ​ Passenger ticket ​ $ 13,835 ​ $ 1,179,404 ​ $ 854,626 ​ $ 2,152,677 Onboard and other ​ 3,094 ​ 484,873 ​ 409,185 ​ 915,230 Total revenue ​ 16,929 ​ 1,664,277 ​ 1,263,811 ​ 3,067,907 Cruise operating expense ​ ​ ​ ​ Commissions, transportation and other ​ 34,601 ​ 297,691 ​ 366,969 ​ 526,955 Onboard and other ​ 3,188 ​ 107,063 ​ 78,161 ​ 186,476 Payroll and related ​ 128,744 ​ 229,385 ​ 375,891 ​ 452,492 Fuel ​ 48,992 ​ 100,531 ​ 174,016 ​ 198,784 Food ​ 6,997 ​ 54,347 ​ 56,213 ​ 109,392 Other ​ 79,130 ​ 169,407 ​ 244,662 ​ 310,976 Total cruise operating expense ​ 301,652 ​ 958,424 ​ 1,295,912 ​ 1,785,075 Other operating expense ​ ​ ​ ​ Marketing, general and administrative ​ 131,436 ​ 240,901 ​ 402,125 ​ 489,843 Depreciation and amortization ​ 179,252 ​ 156,271 ​ 377,449 ​ 326,012 Impairment loss ​ ​ — ​ ​ — ​ ​ 1,607,797 ​ ​ — Total other operating expense ​ 310,688 ​ 397,172 ​ 2,387,371 ​ 815,855 Operating income (loss) ​ ( 595,411 ) ​ 308,681 ​ ( 2,419,472 ) ​ 466,977 Non-operating income (expense) ​ ​ ​ ​ ​ ​ Interest expense, net ​ ( 114,537 ) ​ ( 65,969 ) ​ ( 183,444 ) ​ ( 139,472 ) Other income (expense), net ​ ( 14,418 ) ​ 3,616 ​ ( 8,595 ) ​ 3,182 Total non-operating income (expense) ​ ( 128,955 ) ​ ( 62,353 ) ​ ( 192,039 ) ​ ( 136,290 ) Net income (loss) before income taxes ​ ( 724,366 ) ​ 246,328 ​ ( 2,611,511 ) ​ 330,687 Income tax benefit (expense) ​ 9,123 ​ ( 6,138 ) ​ 15,296 ​ 27,660 Net income (loss) ​ $ ( 715,243 ) ​ $ 240,190 ​ $ ( 2,596,215 ) ​ $ 358,347 Weighted-average shares outstanding ​ ​ ​ ​ Basic ​ 239,342,745 ​ 215,426,441 ​ 226,486,772 ​ 216,328,943 Diluted ​ 239,342,745 ​ 216,810,766 ​ 226,486,772 ​ 217,837,005 Earnings (loss) per share ​ ​ ​ ​ Basic ​ $ ( 2.99 ) ​ $ 1.11 ​ $ ( 11.46 ) ​ $ 1.66 Diluted ​ $ ( 2.99 ) ​ $ 1.11 ​ $ ( 11.46 ) ​ $ 1.65 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 3 Table of Contents Norwegian Cruise Line Holdings Ltd. Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 2020 2019 Net income (loss) ​ $ ( 715,243 ) ​ $ 240,190 ​ $ ( 2,596,215 ) ​ $ 358,347 Other comprehensive income (loss): ​ ​ ​ ​ Shipboard Retirement Plan ​ 102 ​ 94 ​ 204 ​ 189 Cash flow hedges: ​ ​ ​ ​ ​ ​ ​ Net unrealized gain (loss) ​ 54,478 ​ ( 17,189 ) ​ ( 251,382 ) ​ ( 2,037 ) Amount realized and reclassified into earnings ​ 28,782 ​ ( 9,274 ) ​ 50,781 ​ ( 16,274 ) Total other comprehensive income (loss) ​ 83,362 ​ ( 26,369 ) ​ ( 200,397 ) ​ ( 18,122 ) Total comprehensive income (loss) ​ $ ( 631,881 ) ​ $ 213,821 ​ $ ( 2,796,612 ) ​ $ 340,225 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 4 Table of Contents Norwegian Cruise Line Holdings Ltd. Consolidated Balance Sheets (Unaudited) (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2020 2019 Assets ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 2,259,949 ​ $ 252,876 Accounts receivable, net ​ 74,213 ​ 75,109 Inventories ​ 82,263 ​ 95,427 Prepaid expenses and other assets ​ 334,243 ​ 306,733 Total current assets ​ 2,750,668 ​ 730,145 Property and equipment, net ​ 13,488,514 ​ 13,135,337 Goodwill ​ 98,134 ​ 1,388,931 Tradenames ​ 500,525 ​ 817,525 Other long-term assets ​ 690,218 ​ 612,661 Total assets ​ $ 17,528,059 ​ $ 16,684,599 Liabilities and shareholders’ equity ​ ​ Current liabilities: ​ ​ Current portion of long-term debt ​ $ 337,338 ​ $ 746,358 Accounts payable ​ 484,927 ​ 100,777 Accrued expenses and other liabilities ​ 648,216 ​ 782,275 Advance ticket sales ​ 1,113,374 ​ 1,954,980 Total current liabilities ​ 2,583,855 ​ 3,584,390 Long-term debt ​ 10,011,872 ​ 6,055,335 Other long-term liabilities ​ 595,307 ​ 529,295 Total liabilities ​ 13,191,034 ​ 10,169,020 Commitments and contingencies (Note 11) ​ ​ Shareholders’ equity: ​ ​ Ordinary shares, $ 0.001 par value; 490,000,000 shares authorized; 280,798,331 shares issued and 256,347,472 shares outstanding at June 30, 2020 and 237,533,270 shares issued and 213,082,411 shares outstanding at December 31, 2019 ​ 281 ​ 237 Additional paid-in capital ​ 4,851,781 ​ 4,235,690 Accumulated other comprehensive income (loss) ​ ( 495,887 ) ​ ( 295,490 ) Retained earnings ​ 1,234,776 ​ 3,829,068 Treasury shares ( 24,450,859 at June 30, 2020 and December 31, 2019, at cost) ​ ( 1,253,926 ) ​ ( 1,253,926 ) Total shareholders’ equity ​ 4,337,025 ​ 6,515,579 Total liabilities and shareholders’ equity ​ $ 17,528,059 ​ $ 16,684,599 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 5 Table of Contents Norwegian Cruise Line Holdings Ltd. Consolidated Statements of Cash Flows (Unaudited) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ June 30, ​ 2020 2019 Cash flows from operating activities ​ ​ Net income (loss) ​ $ ( 2,596,215 ) ​ $ 358,347 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: ​ ​ Depreciation and amortization expense ​ 379,375 ​ 326,471 Impairment loss ​ ​ 1,607,797 ​ ​ — Deferred income taxes, net ​ ( 14,458 ) ​ ( 29,793 ) Loss on derivatives ​ ​ 8,294 ​ ​ — Loss on extinguishment of debt ​ 5,014 ​ 3,988 Provision for bad debts and inventory obsolescence ​ 10,359 ​ 1,057 Gain on involuntary conversion of assets ​ ​ ( 1,403 ) ​ ​ ( 2,810 ) Share-based compensation expense ​ 55,147 ​ 56,650 Net foreign currency adjustments ​ 160 ​ ( 716 ) Changes in operating assets and liabilities: ​ ​ ​ ​ Accounts receivable, net ​ ( 2,108 ) ​ ( 15,121 ) Inventories ​ 11,996 ​ ( 1,342 ) Prepaid expenses and other assets ​ ( 115,066 ) ​ ( 57,929 ) Accounts payable ​ 369,519 ​ ( 81,690 ) Accrued expenses and other liabilities ​ ( 202,547 ) ​ ( 74,470 ) Advance ticket sales ​ ( 844,244 ) ​ 558,579 Net cash provided by (used in) operating activities ​ ( 1,328,380 ) ​ 1,041,221 Cash flows from investing activities ​ ​ Additions to property and equipment, net ​ ( 725,477 ) ​ ( 413,888 ) Cash received on settlement of derivatives ​ — ​ 289 Cash paid on settlement of derivatives ​ ​ ( 28,606 ) ​ ​ — Other ​ ​ 2,519 ​ ​ 4,047 Net cash used in investing activities ​ ( 751,564 ) ​ ( 409,552 ) Cash flows from financing activities ​ ​ Repayments of long-term debt ​ ( 207,863 ) ​ ( 2,808,615 ) Proceeds from long-term debt ​ 3,962,655 ​ 2,652,000 Common share issuance proceeds, net ​ ​ 441,935 ​ ​ — Proceeds from employee related plans ​ 4,100 ​ 11,368 Net share settlement of restricted share units ​ ( 15,318 ) ​ ( 20,830 ) Purchases of treasury shares ​ — ​ ( 200,071 ) Early redemption premium ​ — ​ ( 117 ) Deferred financing fees ​ ( 94,559 ) ​ ( 9,330 ) Net cash provided by (used in) financing activities ​ 4,090,950 ​ ( 375,595 ) Effect of exchange rates on cash and cash equivalents ​ ​ ( 3,933 ) ​ ​ — Net increase in cash and cash equivalents ​ 2,007,073 ​ 256,074 Cash and cash equivalents at beginning of period ​ 252,876 ​ 163,851 Cash and cash equivalents at end of period ​ $ 2,259,949 ​ $ 419,925 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 6 Table of Contents Norwegian Cruise Line Holdings Ltd. Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ Total ​ ​ Ordinary ​ Paid-in ​ Comprehensive ​ Retained ​ Treasury ​ Shareholders’ ​ ​ Shares Capital Income (Loss) Earnings Shares Equity Balance, March 31, 2020 $ 239 ​ $ 4,257,571 ​ $ ( 579,249 ) ​ $ 1,950,019 ​ $ ( 1,253,926 ) ​ $ 4,374,654 Share-based compensation ​ — ​ 22,389 ​ — ​ — ​ — ​ 22,389 Common share issuance proceeds, net ​ ​ 42 ​ ​ 440,924 ​ ​ — ​ ​ — ​ ​ — ​ ​ 440,966 Net share settlement of restricted share units ​ — ​ ( 343 ) ​ — ​ — ​ — ​ ( 343 ) Beneficial conversion feature ​ ​ — ​ ​ 131,240 ​ ​ — ​ ​ — ​ ​ — ​ ​ 131,240 Other comprehensive income, net ​ — ​ — ​ 83,362 ​ — ​ — ​ 83,362 Net loss ​ — ​ — ​ — ​ ( 715,243 ) ​ — ​ ( 715,243 ) Balance, June 30, 2020 ​ $ 281 ​ $ 4,851,781 ​ $ ( 495,887 ) ​ $ 1,234,776 ​ $ ( 1,253,926 ) ​ $ 4,337,025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ Total ​ ​ Ordinary ​ Paid-in ​ Comprehensive ​ Retained ​ Treasury ​ Shareholders’ ​ Shares Capital Income (Loss) Earnings Shares Equity Balance, December 31, 2019 $ 237 ​ $ 4,235,690 ​ $ ( 295,490 ) ​ $ 3,829,068 ​ $ ( 1,253,926 ) $ 6,515,579 Share-based compensation ​ — ​ 55,147 ​ — ​ — ​ — ​ 55,147 Issuance of shares under employee related plans ​ 2 ​ 4,098 ​ — ​ — ​ — ​ 4,100 Common share issuance proceeds, net ​ ​ 42 ​ ​ 440,924 ​ ​ — ​ ​ — ​ ​ — ​ ​ 440,966 Net share settlement of restricted share units ​ — ​ ( 15,318 ) ​ — ​ — ​ — ​ ( 15,318 ) Beneficial conversion feature ​ ​ — ​ ​ 131,240 ​ ​ — ​ ​ — ​ ​ — ​ ​ 131,240 Cumulative change in accounting policy ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,923 ​ ​ — ​ ​ 1,923 Other comprehensive loss, net ​ — ​ — ​ ( 200,397 ) ​ — ​ — ​ ( 200,397 ) Net loss ​ — ​ — ​ — ​ ( 2,596,215 ) ​ — ​ ( 2,596,215 ) Balance, June 30, 2020 ​ $ 281 ​ $ 4,851,781 ​ $ ( 495,887 ) ​ $ 1,234,776 ​ $ ( 1,253,926 ) ​ $ 4,337,025 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ ​ ​ ​ 7 Table of Contents Norwegian Cruise Line Holdings Ltd. Consolidated Statements of Changes in Shareholders’ Equity - Continued (Unaudited) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ Total ​ ​ Ordinary ​ Paid-in ​ Comprehensive ​ Retained ​ Treasury ​ Shareholders’ ​ ​ Shares Capital Income (Loss) Earnings Shares ​ Equity Balance, March 31, 2019 $ 237 $ 4,145,530 $ ( 153,400 ) $ 3,016,997 $ ( 1,104,062 ) $ 5,905,302 Share-based compensation ​ — ​ 29,651 ​ — ​ — ​ — ​ 29,651 Issuance of shares under employee related plans ​ — ​ 3,624 ​ — ​ — ​ — ​ 3,624 Treasury shares ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 75 ) ​ ​ ( 75 ) Net share settlement of restricted share units ​ — ​ ( 1,980 ) ​ — ​ — ​ — ​ ( 1,980 ) Other comprehensive loss, net ​ — ​ — ​ ( 26,369 ) ​ — ​ — ​ ( 26,369 ) Net income ​ — ​ — ​ — ​ 240,190 ​ — ​ 240,190 Balance, June 30, 2019 ​ $ 237 ​ $ 4,176,825 ​ $ ( 179,769 ) ​ $ 3,257,187 ​ $ ( 1,104,137 ) ​ $ 6,150,343 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2019 ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ Total ​ ​ Ordinary ​ Paid-in ​ Comprehensive ​ Retained ​ Treasury ​ Shareholders’ ​ Shares Capital Income (Loss) Earnings Shares ​ Equity Balance, December 31, 2018 $ 235 $ 4,129,639 $ ( 161,647 ) $ 2,898,840 $ ( 904,066 ) $ 5,963,001 Share-based compensation ​ — ​ 56,650 ​ — ​ — ​ — ​ 56,650 Issuance of shares under employee related plans ​ 2 ​ 11,366 ​ — ​ — ​ — ​ 11,368 Treasury shares ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 200,071 ) ​ ​ ( 200,071 ) Net share settlement of restricted share units ​ — ​ ( 20,830 ) ​ — ​ — ​ — ​ ( 20,830 ) Other comprehensive loss, net ​ — ​ — ​ ( 18,122 ) ​ — ​ — ​ ( 18,122 ) Net income ​ — ​ — ​ — ​ 358,347 ​ — ​ 358,347 Balance, June 30, 2019 ​ $ 237 ​ $ 4,176,825 ​ $ ( 179,769 ) ​ $ 3,257,187 ​ $ ( 1,104,137 ) ​ $ 6,150,343 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 8 Table of Contents Norwegian Cruise Line Holdings Ltd. Notes to Consolidated Financial Statements (Unaudited) Unless otherwise indicated or the context otherwise requires, references in this report to (i) the “Company,” “we,” “our” and “us” refer to NCLH (as defined below) and its subsidiaries (including Prestige (as defined below), except for periods prior to the consummation of the Acquisition of Prestige (as defined below)), (ii) “NCLC” refers to NCL Corporation Ltd., (iii) “NCLH” refers to Norwegian Cruise Line Holdings Ltd., (iv) “Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and its predecessors, and (v) “Prestige” refers to Prestige Cruises International S. de R.L. (formerly Prestige Cruises International, Inc.), together with its consolidated subsidiaries, including Prestige Cruise Holdings S. de R.L. (formerly Prestige Cruise Holdings, Inc.), Prestige’s direct wholly-owned subsidiary, which in turn is the parent of Oceania Cruises S. de R.L. (formerly Oceania Cruises, Inc.) (“Oceania Cruises”) and Seven Seas Cruises S. de R.L. (“Regent”) (Oceania Cruises also refers to the brand by the same name and Regent also refers to the brand Regent Seven Seas Cruises). References to the “U.S.” are to the United States of America, and “dollar(s)” or “$” are to U.S. dollars, the “U.K.” are to the United Kingdom and “euro(s)” or “€” are to the official currency of the Eurozone. We refer you to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Terminology” for the capitalized terms used and not otherwise defined throughout these notes to consolidated financial statements. 1. Description of Business and Organization We are a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. As of June 30, 2020, we had 28 ships with approximately 59,150 Berths and had orders for nine additional ships to be delivered through 2027, subject to certain conditions. Due to the novel coronavirus (“COVID-19”), we have temporarily suspended global cruise voyages through October 31, 2020. We refer you to Note 2 – “Summary of Significant Accounting Policies” for further information. We have one Explorer Class Ship on order for delivery in 2023. We have two Allura Class Ships on order for delivery in 2023 and 2025. Project Leonardo will introduce an additional six ships with expected delivery dates from 2022 through 2027. These additions to our fleet will increase our total Berths to approximately 82,000 . The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged. ​ ​ 2. Summary of Significant Accounting Policies Liquidity and Management’s Plan Due to the continued spread of COVID-19, growing travel restrictions and limited access to ports around the world, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across its three brands, which has subsequently been extended through October 31, 2020. On March 14, 2020, concurrent with our and the broader cruise industry’s original suspension, the U.S. Centers for Disease Control and Prevention (“CDC”) issued a No Sail Order through April 13, 2020, which was subsequently extended through July 24, 2020. On July 16, 2020, the CDC extended its No Sail Order until the earliest of (a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, (b) the date the Director of the CDC rescinds or modifies the No Sail Order based on specific public health or other considerations or (c) September 30, 2020. In addition, the duration of any voluntary suspensions we have implemented and the resumption of operations outside of the United States will be dependent, in part, on the severity and duration of the COVID-19 pandemic, the status of the CDC’s No Sail Order, the lifting of various travel restrictions and travel bans issued by various countries around the world, as well as the availability of ports around the world. Significant events affecting travel, including COVID-19, typically have an impact on the demand for cruise vacations, with the full extent of the impact generally determined by the length of time the event influences travel decisions. We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity, and such negative impact 9 Table of Contents may continue well beyond the containment of such an outbreak. Due to the unknown duration and extent of the COVID-19 pandemic, travel restrictions and advisories, the potential unavailability of ports and/or destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, the full effect on our financial performance and financial condition cannot be quantified at this time, but we expect to report a net loss for the year ending December 31, 2020. ​ Since March 2020, we have taken several actions to bolster our financial condition while our global cruise voyages are suspended. In March 2020, NCLC borrowed the full amount of $ 1.55 billion under its $ 875 million Revolving Loan Facility and its $ 675 million Epic Credit Facility, dated as of March 5, 2020. We have taken additional measures to improve our liquidity by refinancing existing debt amortization, including under our agreements with export credit agencies and related governments, and by extending the maturities and refinancing amortization under other agreements, which has resulted in approximately $ 1.6 billion of payment deferrals. See Note 8 – “Long-Term Debt” for further information. Through June 30, 2020, the Company received additional financing through various debt financings and an equity offering totaling $ 2.4 billion in gross proceeds. The equity offering resulted in 41,818,181 shares being issued in exchange for gross proceeds of $ 460 million. See Note 8 – “Long-Term Debt” for further information on the debt financings. Subsequent to June 30, 2020, the Company received another $ 1.5 billion in gross proceeds from additional debt financings and an additional equity offering, of which approximately $ 675 million was used to repay in full and terminate the Epic Credit Facility. Refer to Note 8 – “Long-Term Debt” for further information on the debt financings and Note 16 – “Subsequent Events” for further information on the equity financing. The Company has also undertaken several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of COVID-19, through the reduction of capital expenditures and operating expenses, including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension, resulting in lower crew payroll expense. In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Based on the actions the Company has taken as described above and our resulting current resources, the Company has alleviated the substantial doubt previously disclosed and has sufficient liquidity to satisfy our obligations over the next twelve months and maintain minimum levels of liquidity as required by certain of our debt agreements. Basis of Presentation The accompanying consolidated financial statements are unaudited and, in our opinion, contain all normal recurring adjustments necessary for a fair statement of the results for the periods presented. Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months; however, demand for cruises during the summer months of 2020 has been materially adversely impacted by the COVID-19 pandemic. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019, which are included in our most recent Annual Report on Form 10-K filed with the SEC, as updated by our Current Report on Form 8-K filed on July 8, 2020. Reclassifications Certain amounts in prior periods have been reclassified to conform to the current period presentation. ​ 10 Table of Contents Earnings (Loss) 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 ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 2020 2019 Net income (loss) ​ $ ( 715,243 ) ​ $ 240,190 ​ $ ( 2,596,215 ) ​ $ 358,347 Basic weighted-average shares outstanding ​ 239,342,745 ​ 215,426,441 ​ 226,486,772 ​ 216,328,943 Dilutive effect of share awards ​ — ​ 1,384,325 ​ — ​ 1,508,062 Diluted weighted-average shares outstanding ​ 239,342,745 ​ 216,810,766 ​ 226,486,772 ​ 217,837,005 Basic earnings (loss) per share ​ $ ( 2.99 ) ​ $ 1.11 ​ $ ( 11.46 ) ​ $ 1.66 Diluted earnings (loss) per share ​ $ ( 2.99 ) ​ $ 1.11 ​ $ ( 11.46 ) ​ $ 1.65 ​ For the three months ended June 30, 2020 and 2019, a total of 59.2 million and 3.6 million shares, respectively, and for the six months ended June 30, 2020 and 2019, a total of 33.1 million and 4.5 million shares, respectively, have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive. Foreign Currency The majority of our transactions are settled in U.S. dollars. We remeasure assets and liabilities denominated in foreign currencies at exchange rates in effect at the balance sheet date. Gains or losses resulting from transactions denominated in other currencies are recognized in our consolidated statements of operations within other income, net. We recognized a loss of $ 10.2 million and $ 3.3 million for the three months ended June 30, 2020 and 2019, respectively, and a gain of $ 9.7 million and a loss of $ 4.3 million for the six months ended June 30, 2020 and 2019, respectively, related to transactions denominated in other currencies. Depreciation and Amortization Expense The amortization of deferred financing fees is included in depreciation and amortization expense in the consolidated statements of cash flows; however, for purposes of the consolidated statements of operations they are included in interest expense, net. Recently Issued Accounting Guidance In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provided guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. We are currently evaluating the impact of ASU 2020-04 on our consolidated financial statements. ​ 11 Table of Contents 3. Revenue Recognition Disaggregation of Revenue Revenue and cash flows are affected by economic factors in various geographical regions. Revenues by destination were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 2020 2019 North America ​ $ 3,366 ​ $ 968,466 ​ $ 954,422 ​ $ 1,951,455 Europe ​ 9,701 ​ 508,435 ​ 23,036 ​ 542,187 Asia-Pacific ​ — ​ 67,239 ​ 150,921 ​ 290,006 South America ​ ​ — ​ ​ 3,765 ​ ​ 76,306 ​ ​ 94,068 Other ​ 3,862 ​ 116,372 ​ 59,126 ​ 190,191 Total revenue ​ $ 16,929 ​ $ 1,664,277 ​ $ 1,263,811 ​ $ 3,067,907 ​ North America includes the U.S., the Caribbean, Canada and Mexico. Europe includes the Baltic region, Canary Islands and Mediterranean. Asia-Pacific includes Australia, New Zealand and Asia. Other includes all other international territories. Segment Reporting We have concluded that our business has a single reportable segment. Each brand, Norwegian, Oceania Cruises and Regent, constitutes a business for which discrete financial information is available and management regularly reviews the brand level operating results and, therefore, each brand is considered an operating segment. Our operating segments have similar economic and qualitative characteristics, including similar long-term margins and similar products and services; therefore, we aggregate all of the operating segments into one reportable segment. Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to U.S.-sourced guests who make reservations in the U.S. Revenue attributable to U.S.-sourced guests has historically approximated 75 - 80 %. No other individual country’s revenues exceed 10% in any given period. Contract Balances Receivables from customers are included within accounts receivable, net. As of June 30, 2020 and December 31, 2019, our receivables from customers were $ 4.5 million and $ 15.3 million, respectively. Beginning in March 2020, our brands launched new cancellation policies to permit our guests to cancel cruises which are not part of the Company’s temporary suspension of voyages up to 48 hours or 15 days, depending on the brand, prior to embarkation and receive a refund in the form of a credit to be applied toward a future cruise. These programs are currently in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through specified time periods, depending on the brand. The future cruise credit is valid for any sailing through December 31, 2022, and we may extend this offer. The future cruise credits are not contracts, and therefore, guests who have elected this option are excluded from our contract liability balance; however, the credit for the original amount paid is included in advance ticket sales. ​ Our contract liabilities are included within advance ticket sales. As of June 30, 2020 and December 31, 2019, our contract liabilities were $ 66.1 million and $ 1.4 billion, respectively. Of the amounts included within contract liabilities as of June 30, 2020, approximately 40 % were refundable in accordance with our cancellation policies. For the six months ended June 30, 2020, $ 0.9 billion of revenue recognized was included in the contract liability balance at the beginning of the period. ​ 12 Table of Contents For cruise vacations that had been cancelled by us due to COVID-19, approximately $ 38.6 million and $ 130.6 million in costs to obtain these contracts, consisting of protected commissions and credit card fees, were recognized in earnings during the three and six months ended June 30, 2020, respectively. ​ ​ 4. Intangible Assets We evaluate goodwill and tradenames for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable. In March 2020, the Company announced a voluntary suspension of all cruise voyages for its three brands, which has subsequently been extended through October 31, 2020. Due to the temporary suspension of operations and decline in our stock price, we performed interim goodwill and tradename impairment tests as of March 31, 2020. We refer you to Note 9 – “Fair Value Measurements and Derivatives” for information on our valuation assumptions. The changes in the carrying amount of goodwill for each reporting unit for the six months ended June 30, 2020 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reporting Unit ​ ​ ​ ​ ​ Norwegian ​ ​ ​ Regent ​ ​ ​ ​ Cruise ​ Oceania ​ Seven Seas ​ Total ​ ​ Line Cruises Cruises Goodwill Balance, December 31, 2019 $ 403,805 ​ $ 523,026 ​ $ 462,100 ​ $ 1,388,931 Impairment loss ​ ( 403,805 ) ​ ( 523,026 ) ​ ( 363,966 ) ​ ( 1,290,797 ) Balance, June 30, 2020 ​ $ — ​ $ — ​ $ 98,134 ​ $ 98,134 ​ We also impaired our tradenames for Oceania Cruises and Regent Seven Seas Cruises by $ 170.0 million and $ 147.0 million, respectively. Following these impairments, the carrying value of our tradenames was $ 500.5 million. ​ The carrying amounts of intangible assets subject to amortization are included within other long-term assets. The gross carrying amounts of intangible assets, the related accumulated amortization, the net carrying amounts and the weighted-average amortization periods of the Company’s intangible assets are listed in the following tables (in thousands, except amortization period): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ Gross Carrying ​ Accumulated ​ Net Carrying ​ Amortization ​ Amount Amortization Amount Period (Years) Customer relationships ​ $ 120,000 ​ $ ( 115,716 ) ​ $ 4,284 6.0 License ​ 750 ​ ( 369 ) ​ 381 10.0 Total intangible assets subject to amortization ​ $ 120,750 ​ $ ( 116,085 ) ​ $ 4,665 ​ 13 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ Gross Carrying ​ Accumulated ​ Net Carrying ​ Amortization ​ Amount Amortization Amount Period (Years) Customer relationships ​ $ 120,000 ​ $ ( 110,169 ) ​ $ 9,831 6.0 Licenses ​ 750 ​ ( 331 ) ​ 419 10.0 Total intangible assets subject to amortization ​ $ 120,750 ​ $ ( 110,500 ) ​ $ 10,250 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The aggregate amortization expense for intangible assets is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 2020 2019 Amortization expense ​ $ 2,792 ​ $ 4,622 ​ $ 5,585 ​ $ 9,244 ​ The following table sets forth the Company’s estimated aggregate amortization expense for each of the five years below (in thousands): ​ ​ ​ ​ ​ Amortization Year Ended December 31, ​ Expense 2021 ​ $ 75 2022 ​ ​ 75 2023 ​ ​ 75 2024 ​ ​ 75 2025 ​ ​ 44 ​ ​ 5. Leases In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19. In this guidance, entities can elect not to apply lease modification accounting with respect to such lease concessions and instead, treat the concession as if it was a part of the existing contract. The Company has elected to not evaluate leases under the lease modification accounting framework for concessions that result from effects of the COVID-19 pandemic. In relation to our rights to use port facilities, we have elected the approach consistent with resolving a contingency, which allows us to remeasure the lease liability and recognize the amount of change in the lease liability as an adjustment to the carrying amount of the associated right-of-use asset. As the full amount of the concession will not be determinable until the force majeure period under the related arrangements have ended, the 14 Table of Contents contingency has not been resolved as of June 30, 2020. During the contingency period, we are recognizing lease expense for these port facilities as incurred. ​ Lease balances were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance Sheet location June 30, 2020 December 31, 2019 Operating leases ​ ​ ​ Right-of-use assets Other long-term assets ​ $ 228,792 ​ $ 236,604 Current operating lease liabilities Accrued expenses and other liabilities ​ ​ 29,677 ​ ​ 39,126 Non-current operating lease liabilities Other long-term liabilities ​ ​ 193,585 ​ ​ 207,243 ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance leases ​ ​ ​ ​ Right-of-use assets Property and equipment, net ​ ​ 12,899 ​ ​ 13,873 Current finance lease liabilities Current portion of long-term debt ​ ​ 5,698 ​ ​ 6,419 Non-current finance lease liabilities Long-term debt ​ ​ 6,913 ​ ​ 8,812 ​ ​ 6. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) for the six months ended June 30, 2020 was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ ​ Change ​ ​ ​ Accumulated ​ Change ​ Related to ​ ​ ​ Other ​ Related to ​ Shipboard ​ ​ ​ Comprehensive ​ Cash Flow ​ Retirement ​ ​ Income (Loss) Hedges ​ Plan ​ Accumulated other comprehensive income (loss) at beginning of period ​ $ ( 295,490 ) ​ $ ( 289,362 ) ​ $ ( 6,128 ) Current period other comprehensive loss before reclassifications ​ ( 251,382 ) ​ ( 251,382 ) — Amounts reclassified into earnings ​ 50,985 ​ 50,781 (1) 204 (2) Accumulated other comprehensive income (loss) at end of period ​ $ ( 495,887 ) ​ $ ( 489,963 ) (3) $ ( 5,924 ) ​ Accumulated other comprehensive income (loss) for the six months ended June 30, 2019 was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2019 ​ ​ ​ ​ ​ ​ ​ Change ​ ​ Accumulated ​ Change ​ Related to ​ ​ ​ Other ​ Related to ​ Shipboard ​ ​ ​ Comprehensive ​ Cash Flow ​ Retirement ​ ​ Income (Loss) Hedges ​ Plan ​ Accumulated other comprehensive income (loss) at beginning of period $ ( 161,647 ) ​ $ ( 157,449 ) ​ $ ( 4,198 ) Current period other comprehensive loss before reclassifications ( 2,037 ) ( 2,037 ) — Amounts reclassified into earnings ( 16,085 ) ( 16,274 ) (1) 189 (2) Accumulated other comprehensive income (loss) at end of period $ ( 179,769 ) $ ( 175,760 ) ​ $ ( 4,009 ) (1) We refer you to Note 9 – “Fair Value Measurements and Derivatives” for the affected line items in the consolidated statements of operations. (2) Amortization of prior-service cost and actuarial loss reclassified to other income, net. (3) Includes $ 83.4 million of loss expected to be reclassified into earnings in the next 12 months. ​ ​ ​ 15 Table of Contents 7. Property and Equipment, net Property and equipment, net increased $ 353.2 million for the six months ended June 30, 2020 primarily due to the delivery of Seven Seas Splendor in January 2020 and ship improvement projects slightly offset by a $ 25.5 million impairment of projects that will not be completed, which has been recognized in depreciation and amortization expense. ​ ​ 8. Long-Term Debt Revolving Credit Facilities In March 2020, NCLC had borrowed the full amount of $ 875 million under its existing Revolving Loan Facility maturing on January 2, 2024. As of June 30, 2020 borrowings under the Revolving Loan Facility bear interest at LIBOR plus a margin of 1.50 %. In March 2020, NCLC entered into a $ 675 million revolving credit facility maturing on March 4, 2021, with JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, and certain other lenders party thereto. NCLC borrowed $ 675 million under the Epic Credit Facility, which bore interest at LIBOR plus a margin of 0.80 % . The facility was secured by Norwegian Epic, Ltd. In April 2020, NCLC entered into an incremental assumption agreement which extended the maturity date of the revolving facility commitments under the Epic Credit Facility to March 3, 2022. The revolving facility loans accrued interest at a per annum rate based on LIBOR plus a margin of 1.75 % in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 0.75 % in the case of base rate loans. The Epic Credit Facility was repaid in July 2020 and terminated as discussed below. ​ Modifications ​ In April 2020, NCLC amended an aggregate amount of $ 386 million of export credit backed facilities that finance Norwegian Breakaway, Norwegian Getaway, Norwegian Escape, Norwegian Joy, Norwegian Bliss and Norwegian Encore to incorporate the terms of a 12 -month debt holiday initiative offered to the cruise industry by Euler Hermes Aktiengesellschaft (“Hermes”), the official export credit agency of Germany. The debt holiday was initiated to provide interim debt service and financial covenant relief for borrowers during the current global COVID-19 pandemic with respect to their Hermes guaranteed financings. The amended agreements provide that, among other things, (a) amortization payments due from April 1, 2020 to March 31, 2021 (the “Deferral Period”) on the loans will be deferred and (b) the principal amounts so deferred will constitute separate tranches of loans under the facilities. The separate tranches of loans will accrue interest at a floating rate per annum based on six-month LIBOR plus a margin as follows: ​ ​ ​ ​ ​ ​ ​ Margin ​ € 529.8 million Breakaway one loan (Norwegian Breakaway) ​ 0.90 % € 529.8 million Breakaway two loan (Norwegian Getaway) ​ 1.20 % € 590.5 million Breakaway three loan (Norwegian Escape) ​ 1.50 % € 729.9 million Breakaway four loan (Norwegian Joy) ​ 1.50 % € 710.8 million Seahawk 1 term loan (Norwegian Bliss) ​ 1.00 % € 748.7 million Seahawk 2 term loan (Norwegian Encore) ​ 1.00 % ​ After the end of the Deferral Period, the deferred amounts will amortize in eight equal semiannual installments. ​ Also in April 2020, NCLC amended its $ 230 million credit agreement, dated as of January 10, 2019, with Nordea Bank ABP, New York Branch, as administrative agent, and certain other lenders. The amendment extends the maturity date of the term loan to January 10, 2022. From January 10, 2021 to January 10, 2022, the loan shall accrue interest at a per annum rate based on LIBOR plus a margin of 1.75 % in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 0.75 % in the case of base rate loans. ​ In May 2020, NCLC amended its $ 260 million credit agreement, dated as of May 15, 2019, with Bank of America, N.A., as administrative agent and collateral agent, and certain other lenders. The amendment provides that (a) amortization payments due through May 1, 2021 will be deferred following the consummation of certain debt and equity financings, 16 Table of Contents which resulted in aggregate gross proceeds greater than the amount required for the extension and (b) the principal amount so deferred will constitute a separate tranche of loans under the facility (the “Deferred Jewel Loans”). The Deferred Jewel Loans will accrue interest at a per annum rate based on LIBOR plus a margin of 2.50 % in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 1.50 % in the case of base rate loans. After the end of the deferral period, the deferred loan payments will amortize in an aggregate principal amount equal to 25 % per annum in semiannual installments, and in the case of such payment due on the maturity date, an amount equal to the then unpaid principal amount of the Deferred Jewel Loans outstanding. NCLC entered into a Fifth Amended and Restated Credit Agreement, dated as of May 8, 2020, with a subsidiary of NCLC, as co-borrower and JPMorgan Chase Bank, N.A., as administrative agent, and lenders holding 87.57 % of the term loans outstanding (the “Term A Deferring Lenders”). This revised facility provides that, among other things, (a) amortization payments due within the first year after effectiveness on the loans under the term A loans (the “Term A Loans”) held by the Term A Deferring Lenders will be deferred and (b) the principal amount so deferred will constitute a separate tranche of loans (the “Deferred Term A Loans”). The Deferred Term A Loans will accrue interest (x) in the case of Eurocurrency loans, at a per annum rate based on LIBOR plus a margin of 2.50 % or (y) in the case of base rate loans, at a per annum rate based on the base rate plus a margin of 1.50 %. After the end of the deferral period, the Deferred Term A Loans will amortize in an aggregate principal amount equal to 25 % per annum of the Deferred Term A Loans, in quarterly installments, and in the case of such payment due on the maturity date, an amount equal to the then unpaid principal amount of the Deferred Term A Loans outstanding. The Term A Loans (other than the Deferred Term A Loans) that are held by the Term A Deferring Lenders shall constitute a separate class of loans (the “Legacy Term A Loans”), with the same terms as the Term A Loans under the Fourth Amended and Restated Credit Agreement, except that the amortization payments on the Legacy Term A Loans shall be deferred during the deferral period. The Term A Loans that are held by lenders other than the Term A Deferring Lenders shall constitute a separate class of loans with the same terms as the Term A Loans under the Fourth Amended and Restated Credit Agreement. In June 2020, NCLC amended the credit facilities secured by Seven Seas Explorer, Seven Seas Splendor, Riviera, Marina, Leonardo One and Leonardo Two to defer amortization with respect to certain of the debt outstanding under the agreements (the “Supplemental Agreements”). The amendments for the Seven Seas Explorer, Seven Seas Splendor, Riviera, Marina, Leonardo One and Leonardo Two facilities summarized below provide $ 156 million of incremental liquidity to the Company through March 2021 and are subject to certain customary conditions. The Supplemental Agreements of Seven Seas Explorer, Seven Seas Splendor, Riviera, and Marina provide that, among other things, (a) amortization payments due during the Deferral Period on the loans will be deferred and (b) the principal amount so deferred will constitute a separate tranche of loans (the “Deferred Loans”). The Deferred Loans will accrue interest at a floating rate per annum based on six-month LIBOR plus a margin as follows: ​ ​ ​ ​ ​ ​ ​ Margin ​ Explorer newbuild loan ​ 2.80 % Splendor newbuild loan ​ 1.75 % Marina newbuild loan ​ 0.55 % Riviera newbuild loan ​ 0.55 % ​ After the end of the Deferral Period, the Deferred Loans will amortize in an aggregate principal amount equal to 25 % per annum of the Deferred Loans, in semiannual installments. Any breach of financial covenants under each respective facility during the Deferral Period under the Supplemental Agreements will not constitute an event of default. In addition, consistent with our amendments to our Hermes-backed credit facilities described above, additional restrictions on restricted payments and certain other covenants were added. The above noted amendments resulted in aggregate modification costs of $ 16.2 million and a loss on extinguishment of debt of $ 5.0 million, which are recognized in interest expense, net. ​ ​ 17 Table of Contents Secured Notes In May 2020, NCLC conducted a private offering of $ 675.0 million aggregate principal amount of 12.25 % senior secured notes due May 15, 2024 (the “2024 Senior Secured Notes”) at 99 % original issue discount. The 2024 Senior Secured Notes pay interest at 12.25 % per annum, semiannually on May 15 and November 15 of each year, commencing on November 15, 2020, to holders of record at the close of business on the immediately preceding May 1 and November 1, respectively. NCLC may redeem the 2024 Senior Secured Notes, in whole or part, at any time prior to February 15, 2024, at a price equal to 100 % of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date and a “make-whole premium.” NCLC may redeem the 2024 Senior Secured Notes, in whole or in part, on or after February 15, 2024, at a price equal to 100 % of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date. At any time prior to February 15, 2022, NCLC may choose to redeem up to 35 % of the aggregate principal amount of the 2024 Senior Secured Notes, with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 112.25 % of the principal amount of the 2024 Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 65 % of the aggregate principal amount of the 2024 Senior Secured Notes issued remains outstanding following such redemption. The 2024 Senior Secured Notes are secured by first-priority interests in, among other things and subject to certain agreed security principles, shares of capital stock in certain subsidiary guarantors, two of our vessels, our material intellectual property and two islands that we use in the operations of our cruise business. The 2024 Senior Secured Notes are also guaranteed by our subsidiaries that own the property that secures the 2024 Senior Secured Notes as well as certain additional subsidiaries whose assets will not secure the 2024 Senior Secured Notes. The indenture governing the 2024 Senior Secured Notes includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets. Exchangeable Notes In May 2020, NCLC conducted a private offering of $ 862.5 million aggregate principal amount of 6.00 % exchangeable senior notes due May 15, 2024 (the “2024 Exchangeable Notes”). The 2024 Exchangeable Notes are guaranteed by NCLH on a senior basis. Holders may exchange their 2024 Exchangeable Notes at their option into redeemable preference shares of NCLC. Upon exchange, the preference shares will be immediately and automatically exchanged, for each $ 1,000 principal amount of exchanged 2024 Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate will initially be 72.7273 ordinary shares per $ 1,000 principal amount of 2024 Exchangeable Notes (equivalent to an initial exchange price of approximately $ 13.75 per ordinary share). The maximum exchange rate is 89.4454 and reflects potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events. The maximum exchange rate referred to above is also subject to adjustment for any stock split, stock dividend or similar transaction. The 2024 Exchangeable Notes pay interest at 6.00 % per annum, semiannually on May 15 and November 15 of each year, commencing on November 15, 2020, to holders of record at the close of business on the immediately preceding May 1 and November 1, respectively. In May 2020, NCLH and NCLC entered into an investment agreement with an affiliate of L Catterton (the “Private Investor”), pursuant to which NCLC agreed to sell and issue to the Private Investor (the “Private Exchangeable Notes Transaction”) up to $ 400 million in aggregate principal amount of exchangeable senior notes due June 1, 2026 (the “Private Exchangeable Notes”). The Private Exchangeable Notes Transaction closed on May 28, 2020. The Private Exchangeable Notes accrue interest at a rate of 7.0 % per annum for the first year post-issuance (which will accrete to the principal amount), 4.5 % per annum interest (which will accrete to the principal amount) plus 3.0 % per annum cash interest for the following four years and 7.5 % per annum in cash interest for the final year prior to maturity. The Private Investor has certain registration rights in respect of NCLH’s ordinary shares underlying the Private Exchangeable Notes and is subject to certain customary transfer, voting and standstill restrictions. 18 Table of Contents The Private Exchangeable Notes are guaranteed by NCLH on a senior basis. Holders may exchange their Private Exchangeable Notes at their option into redeemable preference shares of NCLC. Upon exchange, the preference shares will be immediately and automatically exchanged, for each $ 1,000 principal amount of exchanged Private Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate will initially be approximately 82.6446 ordinary shares per $ 1,000 principal amount of Private Exchangeable Notes (equivalent to an initial exchange price of $ 12.10 per ordinary share). The maximum exchange rate is 90.9090 and reflects potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events. The maximum exchange rate referred to above is also subject to adjustment for any stock split, stock dividend or similar transaction. NCLC has the right to redeem all or a portion of the Private Exchange Notes at any time after the third anniversary of the issuance date at a price equal to 100 % of the accreted principal amount thereof if the market closing price of NCLH’s ordinary shares has been at least 250 % of the per share price implied by the exchange rate then in effect for at least 20 trading days during any 30 consecutive trading day period. The Private Exchangeable Notes contain a beneficial conversion feature, which resulted from a significant increase in our share price between the execution of the agreement and the issuance of the notes. A beneficial conversion feature is a nondetachable conversion feature that is “in-the-money” at the commitment date. The in-the-money portion, also known as the intrinsic value of the option, is recorded in equity, with an offsetting discount to the carrying amount of convertible debt to which it is attached. The discount is amortized to interest expense over the life of the debt with adjustments to amortization upon full or partial conversions of the debt. The beneficial conversion feature for the Private Exchangeable Notes is $ 131.2 million and is recognized within additional paid-in capital. The net carrying amounts of the liability components of our exchangeable notes consist of the following (in thousands): ​ ​ ​ ​ ​ ​ June 30, ​ 2020 Principal amount ​ $ 1,262,500 Less: Unamortized debt discount, including deferred financing fees ​ ​ ( 173,577 ) Net carrying value ​ $ 1,088,923 ​ The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 3.9 years and 5.9 years for the 2024 Exchangeable Notes and Private Exchangeable Notes, respectively. The following table presents the interest expense recognized related to the exchangeable notes (in thousands): ​ ​ ​ ​ ​ ​ Three and Six Months ​ ​ Ended June 30, 2020 Interest expense, including amortization of debt discounts and coupon interest ​ $ 12,529 ​ The effective interest rate is 7.09 % and 17.45 % for the 2024 Exchangeable Notes and the Private Exchangeable Notes, respectively. As of June 30, 2020, the if-converted value above par was $ 143.1 million on available shares of 33.1 million and $ 168.1 million on available shares of 62.7 million for the Private Exchangeable Notes and 2024 Exchangeable Notes, respectively. ​ ​ ​ ​ 19 Table of Contents Debt Repayments The following are scheduled principal repayments on our long-term debt including finance lease obligations as of June 30, 2020 for each of the next five years (in thousands): ​ ​ ​ ​ ​ Year Amount July 1, 2020 - June 30, 2021 ​ $ 337,338 July 1, 2021 - June 30, 2022 ​ 1,858,011 July 1, 2022 - June 30, 2023 ​ 775,009 July 1, 2023 - June 30, 2024 ​ 4,389,872 July 1, 2024 - June 30, 2025 ​ 1,113,479 Thereafter ​ 2,215,306 Total ​ $ 10,689,015 ​ Debt Covenants At June 30, 2020, we were in compliance with all of our debt covenants. As part of the Hermes debt holiday and the Supplemental Agreements, we have obtained lender consents to waive compliance with financial covenants for the Deferral Period. If we do not continue to remain in compliance with our covenants, we would have to seek additional amendments to our covenants. However, no assurances can be made that such amendments would be approved by our lenders. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which could have a material adverse impact to our operations and liquidity. July Offerings In July 2020, NCLC conducted a private offering of $ 750.0 million aggregate principal amount of 10.25 % senior secured notes due February 1, 2026 (the “2026 Senior Secured Notes”). The 2026 Senior Secured Notes pay interest at 10.25 % per annum, semiannually on February 1 and August 1 of each year, commencing on February 1, 2021, to holders of record at the close of business on the immediately preceding January 15 and July 15, respectively. NCLC may redeem the 2026 Senior Secured Notes, in whole or part, at any time prior to August 1, 2023, at a price equal to 100 % of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date and a “make-whole premium.” NCLC may redeem the 2026 Senior Secured Notes, in whole or in part, on or after August 1, 2023, at the redemption prices set forth in the indenture for the 2026 Senior Secures Notes plus accrued and unpaid interest to, but excluding, the redemption date. At any time prior to August 1, 2023, NCLC may choose to redeem up to 35 % of the aggregate principal amount of the 2026 Senior Secured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 110.25 % of the principal amount of the 2026 Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 65 % of the aggregate principal amount of the 2026 Senior Secured Notes issued remains outstanding following such redemption. NCLC used a portion of the proceeds from the 2026 Senior Secured Notes to repay the $ 675 million plus accrued and unpaid interest outstanding under the Epic Credit Facility, which was secured by the Norwegian Epic. Following the termination of the Epic Credit Facility, the vessel owned and operated by Norwegian Epic, Ltd. was released as collateral, thereby enabling the 2026 Senior Secured Notes and certain of the related guarantees to be secured by a first-priority security interest in, among other things and subject to certain agreed security principles, the Norwegian Epic. The indenture governing the 2026 Senior Secured Notes includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets. 20 Table of Contents Also in July 2020, NCLC conducted a private offering of $ 450.0 million aggregate principal amount of 5.375 % exchangeable senior notes due August 1, 2025 (the “2025 Exchangeable Notes”). The 2025 Exchangeable Notes are guaranteed by NCLH on a senior basis. Holders may exchange their 2025 Exchangeable Notes at their option into redeemable preference shares of NCLC. Upon exchange, the preference shares will be immediately and automatically exchanged, for each $ 1,000 principal amount of exchanged 2025 Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate. The exchange rate will initially be 53.3333 ordinary shares per $ 1,000 principal amount of 2025 Exchangeable Notes (equivalent to an initial exchange price of approximately $ 18.75 per ordinary share). The maximum exchange rate is 66.6666 and reflects potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events. The maximum exchange rate referred to above is also subject to adjustment for any stock split, stock dividend or similar transaction. The 2025 Exchangeable Notes pay interest at 5.375 % per annum, semiannually on February 1 and August 1 of each year, commencing on February 1, 2021, to holders of record at the close of business on the immediately preceding January 15 and July 15, respectively. 9. 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. If it is determined that the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other comprehensive income (loss) is released to earnings. There are no amounts excluded from the assessment of hedge effectiveness and there are no credit-risk-related contingent features in our derivative agreements. We monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. Credit risk, including but not limited to counterparty non-performance under derivatives, is not considered significant, as we primarily conduct business with large, well-established financial institutions with which we have established relationships, and which have credit risks acceptable to us, or the credit risk is spread out among many creditors. We do not anticipate non-performance by any of our significant counterparties. As of June 30, 2020, we had fuel swaps which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately 1.1 million metric tons of our projected fuel purchases, maturing through December 31, 2023 . 21 Table of Contents As of June 30, 2020, we had fuel swaps which were not designated as cash flow hedges. Due to a decrease in forecasted fuel consumption resulting from voyage cancellations due to COVID-19, we released into earnings fuel hedges of approximately 63 thousand metric tons of fuel as these forecasted transactions were no longer probable of occurring. The agreements mature through December 31, 2020 . As of June 30, 2020, we had foreign currency forward contracts, matured foreign currency options and matured foreign currency collars which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. The notional amount of our foreign currency forward contracts was € 2.0 billion, or $ 2.2 billion based on the euro/U.S. dollar exchange rate as of June 30, 2020. As of June 30, 2020, we had interest rate swaps and collars, which are used to hedge our exposure to interest rate movements and manage our interest expense. The notional amount of our outstanding debt associated with the interest rate swaps and collars was $ 0.7 billion as of June 30, 2020. The derivatives measured at fair value and the respective location in the consolidated balance sheets include the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets ​ Liabilities ​ ​ ​ ​ June 30, ​ December 31, ​ June 30, ​ December 31, ​ Balance Sheet Location 2020 2019 2020 2019 Derivative Contracts Designated as Hedging Instruments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fuel contracts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other long-term assets ​ $ — ​ $ 277 ​ $ — ​ $ — ​ ​ Accrued expenses and other liabilities ​ — ​ 2,300 ​ 67,658 ​ 18,257 ​ ​ Other long-term liabilities ​ — ​ 683 ​ 77,694 ​ 17,763 Foreign currency contracts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Prepaid expenses and other assets ​ 180 ​ — ​ — ​ — ​ ​ Other long-term assets ​ 4,055 ​ — ​ — ​ — ​ ​ Accrued expenses and other liabilities ​ — ​ — ​ 30,151 ​ 33,475 ​ ​ Other long-term liabilities ​ — ​ 169 ​ 167,517 ​ 118,500 Interest rate contracts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accrued expenses and other liabilities ​ — ​ — ​ 8,820 ​ 2,178 ​ ​ Other long-term liabilities ​ ​ — ​ — ​ 3,009 ​ ​ 1,861 Total derivatives designated as hedging instruments ​ $ 4,235 ​ $ 3,429 ​ $ 354,849 ​ $ 192,034 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivative Contracts Not Designated as Hedging Instruments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fuel contracts ​ Accrued expenses and other liabilities ​ $ — ​ $ — ​ $ 8,194 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total derivatives not designated as hedging instruments ​ $ — ​ $ — ​ $ 8,194 ​ $ — Total derivatives ​ ​ ​ $ 4,235 ​ $ 3,429 ​ $ 363,043 ​ $ 192,034 ​ 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. 22 Table of Contents The following table discloses the gross and net amounts recognized within assets and liabilities (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ Gross ​ Amounts ​ Total Net ​ Amounts ​ ​ ​ June 30, 2020 Amounts Offset Amounts Not Offset Net Amounts Assets ​ $ 4,235 ​ $ — ​ $ 4,235 ​ $ ( 4,235 ) ​ $ — Liabilities ​ ​ 363,043 ​ ​ — ​ ​ 363,043 ​ ​ ( 363,043 ) ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ Gross ​ Amounts ​ Total Net ​ Amounts ​ ​ ​ December 31, 2019 Amounts Offset Amounts Not Offset Net Amounts Assets ​ $ 277 ​ $ — ​ $ 277 ​ $ — ​ $ 277 Liabilities ​ ​ 192,034 ​ ​ ( 3,152 ) ​ ​ 188,882 ​ ​ ( 149,863 ) ​ ​ 39,019 ​ The effects of cash flow hedge accounting on accumulated other comprehensive income (loss) were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Location of Gain ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Loss) Reclassified ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ from Accumulated ​ Amount of Gain (Loss) Reclassified ​ ​ Amount of Gain (Loss) ​ Other Comprehensive ​ from Accumulated Other ​ ​ Recognized in Other ​ Income (Loss) into ​ Comprehensive Derivatives Comprehensive Income Income Income (Loss) into Income ​ ​ Three Months ​ Three Months ​ ​ ​ Three Months ​ Three Months ​ ​ Ended ​ Ended ​ ​ ​ Ended ​ Ended ​ June 30, 2020 June 30, 2019 ​ June 30, 2020 June 30, 2019 Fuel contracts ​ $ 27,769 ​ $ ( 16,577 ) Fuel ​ $ ( 13,878 ) ​ $ 9,885 Fuel contracts ​ ​ — ​ ​ — ​ Other income (expense), net ​ ​ ( 11,964 ) ​ ​ — Foreign currency contracts ​ 27,694 ​ 4,181 Depreciation and amortization ​ ( 1,266 ) ​ ( 703 ) Interest rate contracts ​ ( 985 ) ​ ( 4,793 ) Interest expense, net ​ ( 1,674 ) ​ 92 Total gain (loss) recognized in other comprehensive income ​ $ 54,478 ​ $ ( 17,189 ) ​ $ ( 28,782 ) ​ $ 9,274 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Location of Gain ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Loss) Reclassified ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ from Accumulated ​ Amount of Gain (Loss) Reclassified ​ ​ Amount of Gain (Loss) ​ Other Comprehensive ​ from Accumulated Other ​ ​ Recognized in Other ​ Income (Loss) into ​ Comprehensive Derivatives Comprehensive Income Income Income (Loss) into Income ​ ​ Six Months ​ Six Months ​ ​ ​ Six Months ​ Six Months ​ ​ Ended ​ Ended ​ ​ ​ Ended ​ Ended ​ June 30, 2020 June 30, 2019 ​ ​ June 30, 2020 June 30, 2019 Fuel contracts $ ( 170,708 ) ​ $ 79,931 ​ Fuel $ ( 20,095 ) ​ $ 17,403 Fuel contracts ​ ​ — ​ ​ — ​ Other income (expense), net ​ ​ ( 26,284 ) ​ ​ — Foreign currency contracts ( 70,193 ) ​ ( 76,097 ) ​ Depreciation and amortization ( 2,395 ) ​ ( 1,406 ) Interest rate contracts ( 10,481 ) ​ ( 5,871 ) ​ Interest expense, net ( 2,007 ) ​ 277 Total gain (loss) recognized in other comprehensive income $ ( 251,382 ) ​ $ ( 2,037 ) ​ $ ( 50,781 ) ​ $ 16,274 ​ 23 Table of Contents The effects of cash flow hedge accounting on the consolidated statements of operations include the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2020 ​ Three Months Ended June 30, 2019 ​ ​ ​ ​ ​ Depreciation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation ​ ​ ​ ​ ​ ​ ​ ​ and ​ Interest ​ Other Income ​ ​ ​ ​ and ​ Interest ​ Fuel Amortization Expense, net ( Expense), net Fuel Amortization Expense, net Total amounts of income and expense line items presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded ​ $ 48,992 ​ $ 179,252 ​ $ 114,537 ​ $ ( 14,418 ) ​ $ 100,531 ​ $ 156,271 ​ $ 65,969 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income ​ ​ ​ ​ ​ ​ ​ Fuel contracts ​ ​ ( 13,878 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ 9,885 ​ ​ — ​ ​ — Foreign currency contracts ​ ​ — ​ ​ ( 1,266 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 703 ) ​ ​ — Interest rate contracts ​ ​ — ​ ​ — ​ ​ ( 1,674 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ 92 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount of loss reclassified from accumulated other comprehensive income (loss) into income as a result that a forecasted transaction is no longer probable of occurring ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fuel contracts ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 11,964 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2020 ​ Six Months Ended June 30, 2019 ​ ​ ​ ​ ​ Depreciation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation ​ ​ ​ ​ ​ ​ ​ ​ and ​ Interest ​ Other Income ​ ​ ​ ​ and ​ Interest ​ Fuel Amortization Expense, net ( Expense), net Fuel Amortization Expense, net Total amounts of income and expense line items presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded ​ $ 174,016 ​ $ 377,449 ​ $ 183,444 ​ $ ( 8,595 ) ​ $ 198,784 ​ $ 326,012 ​ $ 139,472 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income ​ ​ ​ ​ ​ ​ ​ ​ Fuel contracts ​ ( 20,095 ) ​ — ​ — ​ — ​ 17,403 ​ — ​ — Foreign currency contracts ​ — ​ ​ ( 2,395 ) ​ — ​ — ​ — ​ ( 1,406 ) ​ — Interest rate contracts ​ — ​ — ​ ( 2,007 ) ​ — ​ — ​ — ​ 277 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount of loss reclassified from accumulated other comprehensive income (loss) into income as a result that a forecasted transaction is no longer probable of occurring ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fuel contracts ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 26,284 ) ​ ​ — ​ ​ — ​ ​ — ​ The effects of derivatives not designated as hedging instruments on the consolidated statements of operations include the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount of Gain (Loss) Recognized in Income ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ Location of Gain (Loss) ​ 2020 2019 2020 2019 Derivatives not designated as hedging instruments ​ ​ ​ ​ ​ Fuel contracts Other income (expense), net ​ $ 3,646 ​ $ — ​ $ 3,646 ​ $ — ​ 24 Table of Contents Long-Term Debt As of June 30, 2020 and December 31, 2019, the fair value of our long-term debt, including the current portion, was $ 11,142.8 million and $ 6,957.8 million, respectively, which was $ 590.2 million higher and $ 31.3 million higher, respectively, than the carrying values, excluding deferred financing costs. The difference between the fair value and carrying value of our long-term debt is due to our fixed and variable rate debt obligations carrying interest rates that are above or below market rates at the measurement dates. The fair value of our long-term revolving and term loan facilities was calculated based on estimated rates for the same or similar instruments with similar terms and remaining maturities. The fair value of our exchangeable notes considers observable risk-free rates; credit spreads of the same of similar instruments; and share prices, tenors, and historical and implied volatilities which are sourced from observable market data. The inputs are considered to be Level 2 in the fair value hierarchy. Market risk associated with our long-term variable rate debt is the potential increase in interest expense from an increase in interest rates or from an increase in share values. Goodwill and Tradenames Goodwill and tradenames are nonfinancial instruments that are measured at fair value on a non-recurring basis. In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350) — Simplifying the Test for Goodwill Impairment, which simplifies the test for goodwill impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The guidance was adopted with an effective date of January 1, 2020, and therefore, our interim goodwill impairment tests as of March 31, 2020 were performed using only a Step 1 test. The Step 1 Test used discounted future cash flows and other market data to determine the fair value of the reporting units at March 31, 2020, which are all considered Level 3 inputs. Our discounted cash flow valuation reflected our principal assumptions of 1) forecasted future operating results and growth rates, which have been prepared under multiple scenarios and are probability weighted, 2) forecasted capital expenditures for fleet growth and ship improvements and 3) a weighted average cost of capital of market participants. Historically, our Step 1 Test consisted of a combined approach using discounted future cash flows and market multiples to determine the fair value of the reporting units. However, for the March 31, 2020 Step 1 Test, the market multiples were used solely as a corroboratory approach given the impact of COVID-19 on the current year’s results, as of the valuation date, as well as prospective results including the lack of any guidance provided, which were not available for our peers. We believe that this approach is the most representative method to assess fair value as it utilizes expectations of long-term growth as well as current market conditions. For the tradenames, we used the relief from royalty method, which uses the same forecasts and discount rates from the discounted cash flow valuation in the goodwill assessment along with a tradename royalty rate assumption. We believe that we made reasonable estimates and judgments. However, a change in our estimated future operating cash flows may result in a decline in fair value in future periods, which may result in a need to recognize additional impairment charges. Other The carrying amounts reported in the consolidated balance sheets of all other financial assets and liabilities approximate fair value. ​ ​ 25 Table of Contents 10. Employee Benefits and Compensation Plans Share Option Awards The following is a summary of option activity under NCLH’s Amended and Restated 2013 Performance Incentive Plan for the six months ended June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Number of Share Option Awards ​ Weighted-Average Exercise Price ​ Average ​ Aggregate ​ ​ Time- ​ Performance- ​ Market- ​ Time- ​ Performance- ​ Market- ​ Contractual ​ Intrinsic ​ ​ Based ​ Based ​ Based ​ Based ​ Based ​ Based ​ Term ​ Value ​ Awards Awards Awards Awards Awards Awards (years) (in thousands) Outstanding as of January 1, 2020 4,918,554 ​ 115,489 208,333 ​ $ 51.84 ​ $ 59.11 ​ $ 59.43 5.42 ​ $ 33,413 Exercised ( 48,221 ) ​ ( 906 ) — ​ ​ 44.38 ​ ​ 19.00 ​ ​ — ​ Forfeited and cancelled ( 163,792 ) ​ — — ​ ​ 50.39 ​ ​ — ​ ​ — ​ Outstanding as of June 30, 2020 4,706,541 ​ 114,583 208,333 ​ ​ 51.97 ​ ​ 59.43 ​ ​ 59.43 4.93 ​ ​ — ​ Restricted Share Unit Awards On March 2, 2020, NCLH granted 2.4 million time-based restricted share unit awards to our employees, which vest in substantially equal annual installments over three years . Additionally, on March 2, 2020, NCLH granted 0.6 million performance-based restricted share units to certain members of our management team, which vest upon the achievement of certain pre-established performance targets established for the 2020 and 2021 calendar years and the satisfaction of an additional time-based vesting requirement that generally requires continued employment through March 1, 2023. The following is a summary of restricted share unit activity for the six months ended June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted- ​ Number of ​ Weighted- ​ Number of ​ Weighted- ​ ​ Time-Based ​ Average Grant ​ Performance- ​ Average Grant ​ Market- ​ Average Grant ​ Awards Date Fair Value Based Awards Date Fair Value Based Awards Date Fair Value Non-vested as of January 1, 2020 3,245,625 ​ $ 54.94 1,129,396 ​ $ 56.09 50,000 ​ $ 59.43 Granted 2,396,824 ​ ​ 35.81 611,808 (1) ​ 35.59 — ​ ​ — Vested ( 1,599,412 ) ​ ​ 54.20 ( 181,682 ) ​ ​ 56.33 — ​ ​ — Forfeited or expired ( 186,914 ) ​ ​ 47.45 ( 63,026 ) ​ ​ 47.45 — ​ ​ — Non-vested as of June 30, 2020 3,856,123 ​ ​ 43.72 1,496,496 ​ ​ 48.04 50,000 ​ ​ 59.43 (1) Number of performance-based restricted share units included assumes maximum achievement of performance targets. ​ The compensation expense recognized for share-based compensation for the periods presented include the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 2020 2019 Payroll and related expense ​ $ 5,029 ​ $ 4,681 ​ $ 9,731 ​ $ 8,485 Marketing, general and administrative expense ​ 17,360 ​ 24,970 ​ 45,416 ​ 48,165 Total share-based compensation expense ​ $ 22,389 ​ $ 29,651 ​ $ 55,147 ​ $ 56,650 ​ ​ ​ 11. Commitments and Contingencies Ship Construction Contracts Project Leonardo will introduce an additional six ships, each approximately 140,000 Gross Tons with approximately 3,300 Berths, with expected delivery dates from 2022 through 2027, subject to certain conditions. For the Regent brand, we have an order for one Explorer Class Ship to be delivered in 2023, which will be approximately 55,000 Gross Tons 26 Table of Contents and 750 Berths. For the Oceania Cruises brand, we have orders for two Allura Class Ships to be delivered in 2023 and 2025. Each of the Allura Class Ships will be approximately 67,000 Gross Tons and 1,200 Berths. The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged. ​ The combined contract prices of the nine ships on order for delivery as of June 30, 2020 was approximately € 7.1 billion, or $ 8.0 billion based on the euro/U.S. dollar exchange rate as of June 30, 2020. We have obtained export credit financing which is expected to fund approximately 80 % of the contract price of each ship, subject to certain conditions. We do not anticipate any contractual breaches or cancellations to occur. However, if any such events were to occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations. Litigation Class Actions On March 12, 2020, a class action complaint, Eric Douglas v. Norwegian Cruise Lines, Frank J. Del Rio and Mark A. Kempa, Case No. 1:20-CV-21107, was filed in the United States District Court for the Southern District of Florida, naming the Company, Frank J. Del Rio, the Company’s President and Chief Executive Officer, and Mark A. Kempa, the Company’s Executive Vice President and Chief Financial Officer, as defendants. Subsequently, two similar class action complaints were also filed in the United States District Court for the Southern District of Florida naming the same defendants. On July 31, 2020, a consolidated amended class action complaint was filed by lead plaintiff’s counsel. The complaint asserts claims, purportedly brought on behalf of a class of shareholders, under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and allege that the Company made false and misleading statements to the market and customers about COVID-19. The complaint seeks unspecified damages and an award of costs and expenses, including reasonable attorneys’ fees, on behalf of a purported class of purchasers of our ordinary shares between February 20, 2020 and March 10, 2020. We believe that the allegations contained in the complaint are without merit and intend to defend the complaint vigorously. We cannot predict at this point the length of time that this action will be ongoing or the liability, if any, which may arise therefrom. ​ In addition, in March 2020 the Florida Attorney General announced an investigation related to the Company’s marketing during the COVID-19 outbreak. Following the announcement of the investigation by the Florida Attorney General, we received notifications from other attorneys general and governmental agencies that they are conducting similar investigations. The Company is cooperating with these ongoing investigations, the outcomes of which cannot be predicted at this time. ​ Helms-Burton Act On August 27, 2019, two lawsuits were filed against Norwegian Cruise Line Holdings Ltd. in the United States District Court for the Southern District of Florida under Title III of the Cuban Liberty and Solidarity (Libertad) Act of 1996, also known as the Helms-Burton Act. The complaint filed by Havana Docks Corporation alleges it holds an interest in the Havana Cruise Port Terminal and the complaint filed by Javier Garcia-Bengochea alleges that he holds an interest in the Port of Santiago, Cuba, both of which were expropriated by the Cuban Government. The complaints further allege that the Company “trafficked” in those properties by embarking and disembarking passengers at these facilities. The plaintiffs seek all available statutory remedies, including the value of the expropriated property, plus interest, treble damages, attorneys’ fees and costs. On January 7, 2020, the United States District Court for the Southern District of Florida dismissed the claim by Havana Docks Corporation. On April 14, 2020, the district court granted Havana Docks Corporation’s motion to reconsider and vacated its order dismissing the claim, allowing Havana Docks Corporation to file an amended complaint on April 16, 2020. On April 24, 2020, we filed a motion seeking permission to appeal the district court’s order which was subsequently denied. We believe we have meritorious defenses to the claims and intend to vigorously defend these matters. As of June 30, 2020, we are unable to reasonably estimate any potential contingent loss from these matters due to a lack of legal precedence. 27 Table of Contents Other In the normal course of our business, various other claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability is typically limited to our deductible amount. Nonetheless, the ultimate outcome of these claims and lawsuits that are not covered by insurance cannot be determined at this time. We have evaluated our overall exposure with respect to all of our threatened and pending litigation and, to the extent required, we have accrued amounts for all estimable probable losses associated with our deemed exposure. We are currently unable to estimate any other potential contingent losses beyond those accrued, as discovery is not complete nor is adequate information available to estimate such range of loss or potential recovery. However, based on our current knowledge, we do not believe that the aggregate amount or range of reasonably possible losses with respect to these matters will be material to our consolidated results of operations, financial condition or cash flows. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery. ​ Other Contingencies ​ The Company also has agreements with its credit card processors that govern approximately $ 0.9 billion at June 30, 2020 in advance ticket sales that have been received by the Company relating to future voyages. These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, that the Company maintain a reserve which could be satisfied by posting collateral. Currently, we have agreed to provide a reserve consisting of $ 70 million of cash and preliminarily agreed to provide second priority liens on certain ships with a collective equity value of approximately $ 700 million based on appraisals as of December 31, 2019, which could be increased or decreased based on certain conditions. If we do not meet an agreed upon minimum liquidity in the future, we may be required to pledge additional collateral and/or post cash reserves or take other actions that may reduce our liquidity. Collateral may be released upon satisfaction of certain financial metrics. ​ ​ 12. Other Income (Expense), Net For the three months ended June 30, 2020, other income (expense), net consisted of an expense of $ 14.4 million primarily due to losses from foreign currency exchange and losses on fuel hedges released into earnings as a result of the forecasted transactions no longer being probable. For the six months ended June 30, 2020, other income (expense), net consisted of expense of $ 8.6 million primarily due to losses on fuel hedges released into earnings as a result of the forecasted transactions no longer being probable offset by gains from foreign currency exchange. For the three and six months ended June 30, 2019, other income (expense), net was income of $ 3.6 million and $ 3.2 million, respectively, primarily due to gains from insurance proceeds and a litigation settlement partially offset by foreign currency exchange losses. ​ ​ 13. Income Tax Benefit For the three and six months ended June 30, 2020, we had an income tax benefit of $ 9.1 million and $ 15.3 million, respectively. For the three and six months ended June 30, 2019, we had income tax expense of $ 6.1 million and an income tax benefit of $ 27.7 million, respectively. For the three and six months ended June 30, 2020, the tax benefit is due to operating losses and the reversal of a valuation allowance. During 2018, we implemented certain tax restructuring strategies that created our ability to utilize the net operating loss carryforwards of Prestige, for which we had previously provided a full valuation allowance. As a result, we recorded a tax benefit of $ 35.7 million in connection with the reversal of substantially all of the valuation allowance in March 2019. 28 Table of Contents 14. Supplemental Cash Flow Information For the six months ended June 30, 2020 and 2019, we had non-cash investing activities in connection with property and equipment of $ 7.2 million and $ 33.6 million, respectively. ​ 15. Related Party Disclosures NCLC, as issuer, NCLH, as guarantor, and U.S. Bank National Association, as trustee are all parties to an indenture, dated May 28, 2020 (the “Indenture”) related to the Private Exchangeable Notes, which are currently held by the Private Investor. The terms of the Indenture are more fully described under Note 8 — “Long-Term Debt”. Based on the initial exchange rate, the Private Investor beneficially owned approximately 11 % of NCLH’s outstanding ordinary shares as of June 30, 2020. The initial exchange rate in the Private Exchangeable Notes may be adjusted in the event of certain make-whole fundamental changes or tax redemption events (each, as described in the Indenture), but the maximum number of NCLH ordinary shares issuable upon an exchange in the event of such an adjustment would not exceed 46,577,947 . The Private Exchangeable Notes also contain certain anti-dilution provisions that could subject the exchange rate to additional adjustment if certain events occur. NCLH, NCLC and the Private Investor also entered into an investor rights agreement dated May 28, 2020 (the “Investor Rights Agreement”) which provides that, among other things, the Private Investor is entitled to nominate one person who will be appointed to the board of directors of NCLH until the first date on which the Private Investor no longer beneficially owns in the aggregate at least 50 % of the number of NCLH’s ordinary shares issuable upon exchange of the Private Exchangeable Notes beneficially owned by the Private Investor in the aggregate as of May 28, 2020 (subject to certain adjustments). The Investor Rights Agreement also provides for customary registration rights for the Private Investor and its affiliates, including demand and piggyback registration rights, contains customary transfer restrictions and provides that the Private Investor and its affiliates are subject to a voting agreement with respect to certain matters during a specified period of time. 16. Subsequent Events In July 2020, NCLH offered 19,166,667 ordinary shares, par value $ 0.001 per share to the public at a price of $ 15.00 per share, which includes 2,500,000 ordinary shares issued in connection with the underwriters’ full exercise of their option to acquire additional ordinary shares. Underwriting discounts and commissions were $ 0.525 per share. The net proceeds from the offering were $ 277.4 million after deducting the underwriters’ discounts and commissions, but before other fees and expenses. ​ Both NCLH and NCLC undertook actions related to debt financing and equity-linked financing in July 2020, which are described in Note 8 — “Long-Term Debt”. ​ ​ ​ 29 Table of Contents