What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-09 · 112 added, 104 removed, 350 unchanged (38% of the section changed)

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federal securities laws intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995.

All statements other than statements of historical facts contained, or incorporated by reference, in this report, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects, actions taken or strategies being considered with respect to our liquidity position, valuation and appraisals of our assets and objectives of management for future operations (including those regarding expected fleet additions, our suspension of certain cruise voyages, our ability to weather the impacts of the COVID-19 pandemic, our expectations regarding the resumption of cruise voyages and the timing for such resumption of cruise voyages, the implementation of and effectiveness of our health and safety protocols, operational position, demand for voyages, financing opportunities and extensions, and future cost mitigation and cash conservation efforts and efforts to reduce operating expenses and capital expenditures) are forward-looking statements.

All statements other than statements of historical facts contained, or incorporated by reference, in this report, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects, actions taken or strategies being considered with respect to our liquidity position, valuation and appraisals of our assets and objectives of management for future operations (including those regarding expected fleet additions, our suspension of certain cruise voyages, our ability to weather the impacts of the COVID-19 pandemic, our expectations regarding the resumption of cruise voyages and the timing for such resumption of cruise voyages, the implementation of and effectiveness of our health and safety protocols, operational position, demand for voyages, plans or goals for our sustainability program and decarbonization efforts, our expectations for future cash flows and profitability, financing opportunities and extensions, and future cost mitigation and cash conservation efforts and efforts to reduce operating expenses and capital expenditures) are forward-looking statements.

Many, but not all, of these statements can be found by looking for words like “expect,” “anticipate,” “goal,” “project,” “plan,” “believe,” “seek,” “will,” “may,” “forecast,” “estimate,” “intend,” “future” and similar words.

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

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

● our ability to comply with the United States Centers for Disease Control and Prevention’s (“CDC”) Conditional Order and any additional or future regulatory restrictions on our operations and to otherwise develop enhanced health and safety protocols to adapt to the pandemic’s unique challenges;

● legislation prohibiting companies from verifying vaccination status;

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

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

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

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

● our need for additional financing or financing to optimize our balance sheet, which may not be available on favorable terms, or at all, and may be dilutive to existing shareholders;

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

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

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

● our success in controlling operating expenses and capital expenditures;

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

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There may be additional risks that we consider immaterial or which are unknown.

In addition, some of our executive officers and directors have not sold their shares in us since the beginning of the COVID-19 pandemic as a gesture of support for our Company as they navigated us through unprecedented challenges.

Now that we have resumed operations, we anticipate that our executive officers and directors may sell shares under Rule 10b5-1 plans beginning in the first quarter of 2022 as part of their ordinary course financial planning.

The above examples are not exhaustive and new risks emerge from time to time.

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

● Breakaway Plus Class Ships .

Norwegian Escape, Norwegian Joy, Norwegian Bliss and Norwegian Encore.

● Capacity Days.

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

Berths available for sale multiplied by the number of cruise days for the period for ships in service.

Centers for Disease Control and Prevention.

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c) a certification process;

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

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

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

The Conditional Order replaced the CDC’s previously issued No Sail Order that expired on October 31, 2020 and remained in effect until November 1, 2021.

The CDC adopted a Temporary Extension and Modification of the Framework for Conditional Sailing Order (the “Temporary Extension”) that became effective on November 1, 2021 and will remain in effect until the earlier of a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, b) the CDC Director’s rescission or modification of the Temporary Extension based on specific public health or other considerations, or c) January 15, 2022 at which point it will revert to a voluntary program.

Effective as of July 23, 2021, for cruise ships arriving in, within, or departing from a port in Florida, the Conditional Order only persists as a non-binding recommendation.

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● Explorer Class Ships.

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

Regent’s Seven Seas Explorer, Seven Seas Splendor, and Seven Seas Grandeur.

Generally accepted accounting principles in the U.S.

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1 to the Credit Agreement, dated as of April 28, 2020, and as further amended by Amendment No.

2 to the Credit Agreement, dated as of January 29, 2021), among NCLC, as borrower, the lenders party

thereto, Nordea Bank Abp, New York Branch, as administrative agent and collateral agent, and Nordea Bank Abp, New York Branch, Mizuho Bank, Ltd., MUFG Bank, Ltd., and Skandinaviska Enskilda Banken AB (Publ), as joint bookrunners, arrangers and co-documentation agents, providing for a $230.0 million senior secured credit facility.

2 to the Credit Agreement, dated as of January 29, 2021), among NCLC, as borrower, the lenders party thereto, Nordea Bank Abp, New York Branch, as administrative agent and collateral agent, and Nordea Bank Abp, New York Branch, Mizuho Bank, Ltd., MUFG Bank, Ltd., and Skandinaviska Enskilda Banken AB (Publ), as joint bookrunners, arrangers and co-documentation agents, providing for a $230.0 million senior secured credit facility.

● Project Leonardo.

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● Term Loan A Facility .

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

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

Non-GAAP Financial Measures

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In measuring our ability to control costs in a manner that positively impacts net income (loss), we believe changes in Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance.

As a result of our voluntary suspension of sailings from March 2020 through June 2021, we did not have any Capacity Days during the suspension period.

Accordingly, we have not presented herein per Capacity Day data for the three or six months ended June 30, 2021 or June 30, 2020.

As a result of our voluntary suspension of sailings from March 2020 until July 2021, we did not have any Capacity Days during the suspension period.

Accordingly, we have not presented herein per Capacity Day data for the three or nine months ended September 30, 2021 or September 30, 2020.

As our business includes the sourcing of passengers and deployment of vessels outside of the U.S., a portion of our revenue and expenses are denominated in foreign currencies, particularly British pound, Canadian dollar, Euro and Australian dollar which are subject to fluctuations in currency exchange rates versus our reporting currency, the U.S.

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accordingly, our presentation of Adjusted Net Loss and Adjusted EPS may not be indicative of future adjustments or results.

For example, for the six months ended June 30, 2020, we incurred $1.6 billion related to impairment losses.

For example, for the nine months ended September 30, 2020, we incurred $1.6 billion related to impairment losses.

We included this as an adjustment in the reconciliation of Adjusted Net Loss since the expenses are not representative of our day-to-day operations;

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Our revenue is seasonal based on demand for cruises, which has historically been strongest during the Northern Hemisphere’s summer months;

however, our cruise voyages were completely suspended from March 2020 until July 2021 due to the COVID-19 pandemic.

however, our cruise voyages were completely suspended from March 2020 until July 2021 due to the COVID-19 pandemic and our resumption of cruise voyages will be phased in gradually as described under “—Update Regarding COVID-19 Pandemic” below.

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.

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Suspension of Cruise Voyages

Due to the continued spread of COVID-19, ongoing travel restrictions and limited access to ports around the world, in March 2020, we implemented a voluntary suspension of all cruise voyages across our three brands.

The Company has announced its phased relaunch plans for all 28 ships across its three brands which began with Norwegian Jade on July 25, 2021 and continues through April 1, 2022.

The first cruise to commence in the U.S.

was on August 7, 2021 with Norwegian Encore sailing to Alaska from Seattle.

The Company expects to have approximately 40% of capacity operating by September 30, 2021 and approximately 75% by December 31, 2021 with the full fleet expected to be back in operation by April 1, 2022.

Due to the impact of COVID-19, travel restrictions and limited access to ports around the world, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across our three brands.

As of the date hereof, 11 of our ships were operating with guests on board as part of our phased return to service.

The Company continues to execute on the phased relaunch plans for its 28-ship fleet.

The Company expects to have approximately 75% of capacity operating by December 31, 2021 with the full fleet expected to be back in operation by April 1, 2022.

Certain sailings have been or may be cancelled in conjunction with the new voyage resumption plans for each vessel.

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The panel’s recommendations have informed new detailed health and safety protocols for our return-to-service plan.

The Company also further extended its depth and breadth of experts with the formation of its SailSAFE Global Health and Wellness Council, comprised of six experts at the forefront of their fields and led by Chairman Dr.

The Company also further extended its depth and breadth of experts with the formation of its SailSAFE Global Health and Wellness Council, comprised of four experts at the forefront of their fields and led by Chairman Dr.

Scott Gottlieb.

The Council’s work complements the Healthy Sail Panel initiative and focuses on the implementation, compliance with and continuous improvement of health and safety protocols across the Company’s operations.

The Company continues to work with its expert advisors, the Healthy Sail Panel, and global public health authorities and government agencies to refine its comprehensive and multi-layered health and safety strategy to enhance its already rigorous health and safety standards in response to COVID-19.

The Company continues

to work with its expert advisors, the Healthy Sail Panel, and global public health authorities and government agencies to refine its comprehensive and multi-layered health and safety strategy to enhance its already rigorous health and safety standards in response to COVID-19.

Pursuant to the Conditional Order, the CDC has issued and may continue to issue additional requirements through technical instructions or orders as needed and the phases of the Conditional Order may be subject to change based on public health considerations, including the trajectory of the pandemic and the ability of cruise ship operators to successfully employ measures that mitigate the risk of COVID-19.

We have received conditional sailing certificates for

certain ships and are in the process of seeking certifications for the remaining ships in our fleet that will be operating out of the U.S.

We have received conditional sailing certificates for certain ships and are in the process of seeking certifications for additional ships in our fleet that will be operating out of the U.S.

Additionally, in the U.S., certain states have enacted legislation prohibiting companies from verifying the vaccination status of guests.

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We began a phased relaunch of cruise voyages in July 2021.

Initially, ship occupancy will be limited to generally between 60% to 80% of capacity.

During the first two months of a ship’s return to service, occupancy is expected to be incrementally increased until the ship reaches full capacity.

By the end of 2021, we are planning for all ships to be ready to sail at full capacity.

Initially each ship is expected to operate at reduced occupancy, which will gradually increase over time.

Based on the current conditions, we are planning for all ships to sail at full capacity by June 30, 2022.

We plan to continue gradually launching ships from each brand through April 1, 2022.

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Our brands have launched new cancellation policies for certain sailings booked during certain time periods to permit our guests to cancel cruises which were not part of our temporary suspension of voyages up to 15 days 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 October 31, 2021.

These programs were in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through October 31, 2021.

Certain cruises booked for certain periods, will be permitted a 60-day cancellation window for refunds.

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We may incur incremental commission expense for the use of these future cruise credits.

In addition, to provide more flexibility to our guests, we have also extended our modified final payment schedule for all voyages on Regent Seven Seas Cruises through September 30, 2021, on Oceania Cruises through October 31, 2021 and for specified future voyages, and for the majority of voyages on Norwegian Cruise Line through March 31, 2022, which now requires payment 60 days prior to embarkation versus the standard 120 days.

In addition, to provide more flexibility to our guests, we have also extended our modified final payment schedule for all voyages on Regent Seven Seas Cruises through September 30, 2021, on Oceania Cruises through October 31, 2021 and for specified future voyages, and for the majority of voyages on Norwegian Cruise Line through April 30, 2022, which now requires payment 60 days prior to embarkation versus the standard 120 days.

Our brands currently expect to provide cash refunds for cash bookings for future sailings we may cancel.

Update on Bookings

Bookings continue to be strong for future periods despite reduced sales and marketing investments and a travel agency industry that has not been at full strength since the start of the pandemic.

2022 booking and pricing trends continue to be very positive driven by strong pent-up demand.

The Company is experiencing robust future demand across all brands with the overall cumulative booked position for full year 2022 meaningfully ahead of 2019’s record levels at higher pricing even when including the dilutive impact of future cruise credits.

Our operations may be suspended beyond our announced suspensions and as a result, current booking data may not be informative.

Net booking volumes in the third quarter of 2021 were negatively impacted by the Delta variant of COVID-19.

The resulting slowdown in net booking volumes was heavily weighted to sailings in the fourth quarter of 2021 and early 2022 and improved sequentially through 2022.

The impact has since abated and net bookings have materially improved over the past several weeks with particular strength for bookings related to sailings in the second half of 2022 and into 2023.

Despite the temporary Delta impact, the Company’s overall cumulative booked position for full year 2022 is in line with 2019’s record levels at higher pricing even when including the dilutive impact of future cruise credits.

The overall cumulative booked position for the second half of 2022, when the full fleet is expected to be back in operation and at normalized occupancy levels, is meaningfully higher than 2019 and at higher prices.

Our full fleet may not resume operations on our expected schedule and as a result, current booking data may not be informative.

In addition, because of our updated cancellation policies, bookings may not be representative of actual cruise revenues.

There are remaining uncertainties about when our full fleet will be back in service at historical occupancy levels and, accordingly, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty;

however, we will report a net loss for the three months ending September 30, 2021 and expect to report a net loss until we are able to resume regular voyages, including for the year ending December 31, 2021.

however, we will report a net loss for the three months and year ending December 31, 2021 and expect to report a net loss until we are able to resume regular voyages.

Refer to “Item 1A.

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In 2021, we have continued to take actions to bolster our financial condition while our global cruise voyages are disrupted.

In March 2021, we received additional financing through various debt financings and an equity offering,

collectively totaling $2.7 billion in gross proceeds.

In March 2021, we received additional financing through various debt financings and an equity offering, collectively totaling $2.7 billion in gross proceeds.

From the proceeds, approximately $1.5 billion was used to extinguish debt.

In November 2021, the Company executed a $1 billion commitment through August 15, 2022 that provides additional liquidity to the Company.

Refer to Note 7 – “Long-Term Debt” for further details about the above transactions.

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Cost savings initiatives to reduce selling, general and administrative expenses, which had already been implemented at the beginning of 2021, included the significant reduction or deferral of marketing expenditures, the implementation of hiring freezes, a 20% salary or hours reduction for certain shoreside team members, a pause in our 401(k) matching contributions, corporate travel freezes for shoreside employees, and employee furloughs.

Some of these cost savings initiatives have been discontinued as we begin our resumption of cruise voyages.

These cost savings initiatives have now been discontinued as we continue our resumption of cruise voyages.

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

Quarterly Overview

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

● Total revenue decreased 74.2% to $4.4 million compared to $16.9 million.

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

● Total revenue increased to $153.1 million compared to $6.5 million.

● Net loss and diluted EPS were $(845.9) million and $(2.29), respectively, compared to $(677.4) million and $(2.50), respectively.

● Operating loss was $(689.1) million compared to $(517.8) million.

● Adjusted Net Loss and Adjusted EPS were $(714.7) million and $(1.93), respectively, in 2021, which included $3.1 million of net adjustments.

Adjusted Net Loss and Adjusted EPS were $(666.4) million and $(2.78), respectively, in 2020, which included $48.8 million of adjustments primarily consisting of share-based compensation and losses on extinguishment and modifications of debt.

● Adjusted Net Loss and Adjusted EPS were $(801.4) million and $(2.17), respectively, in 2021, which included $44.5 million of adjustments primarily related to non-cash compensation.

Adjusted Net Loss and Adjusted EPS were $(638.7) million and $(2.35), respectively, in 2020, which included $38.6 million of adjustments primarily consisting of non-cash compensation and losses on extinguishment and modifications of debt.

● Adjusted EBITDA decreased 51.4% to $(475.0) million compared to $(313.8) million.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Passengers carried

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Total cruise operating expense

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Non-GAAP Adjustments:

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Interest expense, net

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(4) Impairment loss consists of goodwill and trade name impairments.

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

Total revenue decreased 74.2% to $4.4 million in 2021 compared to $16.9 million in 2020.

In 2021 and 2020, our total revenue was insignificant.

The adverse impact on revenue was due to the cancellation of sailings beginning March 13, 2020 as a result of the COVID-19 pandemic.

Total cruise operating expense decreased 17.2% in 2021 compared to 2020.

In 2021, our cruise operating expenses were primarily related to crew costs, including salaries, food and other travel costs;

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

Total revenue increased to $153.1 million in 2021 compared to $6.5 million in 2020.

Revenue in 2021 and 2020 has been adversely impacted due to the cancellation of sailings as a result of the COVID-19 pandemic.

Revenue increased in 2021 as certain ships have returned to service.

Total cruise operating expense increased 131.3% in 2021 compared to 2020.

In 2021, our cruise operating expenses increased primarily related to crew costs, including salaries, food and other travel costs as we began our return to service;

ship maintenance, including Dry-dock expenses;

and costs related to COVID-19, including crew and passenger testing.

In 2020, our cruise operating expenses were primarily related to crew costs, including salaries, food and other repatriation costs;

and other ongoing costs such as insurance and ship maintenance.

Additionally, in 2020, our cruise operating expenses were increased due to costs associated with the suspension of cruise voyages, including the cost of crew repatriation and the continued payment of protected commissions.

Gross Cruise Cost increased 0.5% in 2021 compared to 2020 primarily related to the decrease in costs described above offset by an increase in marketing, general and administrative expenses as we prepare to return to sailing.

Total other operating expense increased 15.8% in 2021 compared to 2020 primarily due to the increase in marketing, general and administrative costs as a result of increased advertising costs as well as an increase in salaries and benefits as we return to a more normalized cost structure.

Gross Cruise Cost increased 92.9% in 2021 compared to 2020 primarily related to the increase in costs described above and an increase in marketing, general and administrative expenses as we return to sailing.

Total other operating expense increased 20.4% in 2021 compared to 2020 primarily due to the increase in marketing, general and administrative costs as a result of the discontinuation of cost savings initiatives described under “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures” as we return to service.

Interest expense, net was $161.2 million in 2021 compared to $139.7 million in 2020.

The increase in interest expense reflects additional debt outstanding at higher interest rates, partially offset by lower LIBOR.

Also, included in 2020 were losses on extinguishment of debt and debt modification costs of $21.2 million.

Other income (expense), net was income of $4.7 million in 2021 compared to expense of $23.7 million in 2020.

In 2021, the income primarily related to gains on fuel swaps not designated as hedges.

In 2020, the expense was primarily related to losses on foreign currency exchange and losses on fuel hedges released into earnings as a result of the forecasted transactions no longer being probable.

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

In 2021, the income primarily related to gains on fuel swaps not designated as hedges and foreign currency exchange.

In 2020, the expense was primarily related to losses on foreign currency exchange and fuel hedges released into earnings as a result of the forecasted transactions no longer being probable.

Nine months ended September 30, 2021 (“ 2021 ”) compared to nine months ended September 30, 2020 (“ 2020 ”)

Total revenue decreased 87.4% to $160.5 million in 2021 compared to $1.3 billion in 2020.

In 2021, the adverse impact on revenue was due to the cancellation of sailings as a result of the COVID-19 pandemic and lower occupancy as we return to service.

In 2020, voyages were cancelled beginning March 13, 2020.

In 2021, our total revenue was insignificant.

The adverse impact on revenue was due to the cancellation of sailings in 2021 as a result of the COVID-19 pandemic.

Total cruise operating expense decreased 40.1% in 2021 compared to 2020.

In 2021, our cruise operating expenses were primarily related to crew costs, including salaries, food and other travel costs;

and other ongoing costs such as insurance and ship maintenance.

and other ongoing costs such as insurance and ship maintenance, including Dry-dock expenses.

In 2020, our cruise operating expenses subsequent to the suspension of cruise voyages on March 13, 2020 primarily included the cost of protected commissions and crew costs, including salaries, food and other repatriation costs.

Gross Cruise Cost decreased 50.6% in 2021 compared to 2020 primarily related to the change in costs described above in addition to a decrease in marketing, general and administrative expenses from cost savings initiatives in connection with the COVID-19 pandemic and as described under “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures.” Total other operating expense decreased 69.3% in 2021 compared to 2020 primarily due to the impairment of goodwill and trade names triggered by the COVID-19 pandemic in 2020.

Gross Cruise Cost decreased 26.2% in 2021 compared to 2020 primarily related to the change in costs described above offset by an increase in marketing, general and administrative expenses primarily related to the discontinuation of cost savings initiatives described under “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures” as we return to service.

Total other operating expense decreased 58.3% in 2021 compared to 2020 primarily due to the impairment of goodwill and trade names triggered by the COVID-19 pandemic in 2020.

Depreciation and amortization expense decreased primarily due to a $25.5 million impairment loss recognized in 2020.

Interest expense, net was $961.7 million in 2021 compared to $183.4 million in 2020.

Interest expense, net was $1.1 billion in 2021 compared to $323.1 million in 2020.

The increase in interest expense reflects losses on extinguishment of debt and debt modification costs of $657.2 million primarily related to the repurchase of the Private Exchangeable Notes as well as additional debt outstanding at higher interest rates, partially offset by lower LIBOR.

Other income (expense), net was income of $57.5 million in 2021 compared to expense of $32.3 million in 2020.

In 2021, the income primarily related to gains on fuel swaps not designated as hedges.

In 2020, the expense was primarily related 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.

In 2021, the income primarily related to gains on fuel swaps not designated as hedges and foreign currency exchange.

In 2020, the expense was primarily related to losses on fuel hedges recognized in earnings as a result of the forecasted transactions no longer being probable and foreign currency exchange.

Liquidity and Capital Resources

As of June 30, 2021, our liquidity was $2.8 billion consisting of cash and cash equivalents.

As of September 30, 2021, our liquidity was $1.9 billion consisting of cash and cash equivalents.

In January 2021, we amended our Senior Secured Credit Facility to further defer certain amortization payments due prior to June 30, 2022 and to waive certain financial and other covenants through December 31, 2022.

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

The Company has also undertaken several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of the COVID-19 pandemic, through the reduction of capital expenditures and operating expenses, including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension, resulting in lower crew payroll expense.

See “Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures” above for further information.

The Company's monthly average cash burn for the second quarter 2021 was approximately $200 million, higher than prior guidance of approximately $190 million and above the prior quarter, as it prepared for a return to service this summer.

Return to service expenses are primarily related to repositioning, provisioning and staffing of vessels, implementing new health and safety protocols and a measured ramp up of demand generating marketing investments.

Looking ahead, we expect third quarter 2021 monthly average cash burn to increase to approximately $285 million driven by the continued phased relaunch of additional vessels.

In November 2021, the Company executed a $1 billion commitment through August 15, 2022 that provides additional liquidity to the Company.

Refer to Note 7 – “Long-Term Debt” for further information.

The Company's monthly average cash burn for the third quarter of 2021 was approximately $275 million, below prior guidance of approximately $285 million.

Looking ahead, the Company expects fourth quarter of 2021 monthly average cash burn to increase to approximately $350 million driven by the continued phased relaunch of additional vessels.

This cash burn rate does not include expected cash inflows from new and existing bookings or contribution from ships that have re-entered service.

Cash burn rates include ongoing ship operating expenses, administrative operating expenses, interest expense, taxes, debt deferral fees and expected non-newbuild capital expenditures and exclude cash refunds of customer deposits as well as cash inflows from new and existing bookings, newbuild related capital expenditures and other working capital changes.

Future cash burn rate estimates also exclude unforeseen expenses.

The second quarter 2021 cash burn rate and third quarter estimate also reflect the deferral of debt amortization and newbuild related payments.

The third quarter of 2021 cash burn rate and fourth quarter estimate also reflect the deferral of debt amortization and newbuild related payments.

We continue to expect a gradual phased relaunch of our ships, with our ships initially operating at reduced occupancy levels as described in “Update Regarding COVID-19 Pandemic— Preparation for the Safe Resumption of Operations.” Refer to “Item 1A.

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Based on the liquidity estimates and our current resources, we have concluded we have sufficient liquidity to satisfy our obligations for at least the next twelve months.

Nonetheless, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future if we are unable to resume our cruise voyages on the schedule expected, and particularly if a substantial portion of our fleet continues to have suspended cruise voyages for a prolonged period.

We also expect to opportunistically pursue refinancings and other balance sheet optimization transactions from time to time, which could include equity, equity-linked or debt financings.

We have received certain financial and other debt covenant waivers through December 31, 2022 and added new free liquidity requirements.

At June 30, 2021, taking into account such waivers, we were in compliance with all of our debt covenants.

At September 30, 2021 , taking into account such waivers, we were in compliance with all of our debt covenants.

If we do not continue to remain in compliance with our covenants, we would have to seek to amend the covenants.

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Since April 2020, S&P Global has downgraded our issuer credit rating to B, lowered our issue-level rating on our $875 million Revolving Loan Facility and $1.5 billion Term Loan A Facility to BB-, our issue-level rating on our $675 million 2024 Senior Secured Notes and $750 million 2026 Senior Secured Notes to B+ and our senior unsecured rating to B-.

If our credit ratings were to be further downgraded, or general market conditions

were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt or equity financing will be further negatively impacted.

We also have significant capacity to incur additional indebtedness under our debt agreements.

If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt or equity financing will be further negatively impacted.

We also have significant capacity to incur additional indebtedness under

our debt agreements.

On May 20, 2021, NCLH’s shareholders authorized a 490,000,000 increase in the number of ordinary shares available for issuance.

However, there is no guarantee that debt or equity financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations.

As of June 30, 2021, we had advance ticket sales of $1.4 billion, including the long-term portion, which included approximately $0.8 billion of future cruise credits.

We also have agreements with our credit card processors that, as of June 30, 2021, governed approximately $1.2 billion in advance ticket sales that had been received by the Company relating to future voyages.

As of September 30, 2021, we had advance ticket sales of $1.7 billion, including the long-term portion, which included approximately $0.75 billion of future cruise credits.

We also have agreements with our credit card processors that, as of September 30, 2021, governed approximately $1.5 billion in advance ticket sales that had been received by the Company relating to future voyages.

These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, that the Company maintain a reserve which would be satisfied by posting collateral.

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Any cash reserve or collateral requested could be increased or decreased.

As of June 30, 2021, we had a reserve of approximately $800 million with a credit card processor recognized in accounts receivable, net or other long-term assets.

Additionally, we are required to fund all refunds until further notice and 100% of incoming advance ticket sales deposits with this credit card processor will be withheld and are not expected to be released until the credit card processor’s exposure is fully collateralized.

As of June 30, 2021, the exposure was approximately $940 million.

The reserve shortfall of approximately $140 million will decrease as refunds are funded, cruises are provided and amounts withheld by the credit card processor are allocated to the reserve rather than remitted to the Company.

We may be required to pledge additional collateral and/or post cash reserves or take other actions that may further reduce our liquidity.

As of September 30, 2021, we had cash reserves of approximately $1.2 billion with credit card processors recognized in accounts receivable, net or other long-term assets.

Subsequent to September 30, 2021, $388.3 million in cash reserves have been released to the Company.

We may be required to pledge additional collateral and/or post additional cash reserves or take other actions that may further reduce our liquidity.

Sources and Uses of Cash

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

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

Net cash used in operating activities was $2.2 billion in 2021 as compared to net cash used in operating activities of $1.9 billion in 2020.

The net cash used in operating activities included timing differences in cash receipts and payments relating to operating assets and liabilities.

Advance ticket sales increased by $191.6 million in 2021 compared to a decrease of $844.2 million in 2020 while our accounts receivable, net and prepaid expenses and other assets, which contain our reserves with credit card processors, decreased cash by $408.1 million and $242.6 million, respectively, compared to a decrease of $2.1 million and $115.1 million, respectively, in 2020.

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

Advance ticket sales increased by $469.6 million in 2021 compared to a decrease of $834.6 million in 2020 while our accounts receivable, net, which contains our reserves with credit card processors, decreased cash by $979.9 million compared to a decrease of $12.1 million in 2020.

Net cash used in investing activities was $543.0 million in 2021 and $901.6 million in 2020, primarily related to newbuild payments and ship improvement projects in 2021 and payments for Seven Seas Splendor and ship improvement projects in 2020.

Net cash provided by financing activities was $1.3 billion in 2021 primarily due to the proceeds of $2.7 billion from our various note and equity offerings partially offset by debt repayments and a related redemption premium associated with extinguishment of the Private Exchangeable Notes.

Net cash provided by financing activities was $4.9 billion in 2020 primarily due to the proceeds of $5.2 billion from our revolving credit facilities, various notes, and newbuild loans partially offset by debt repayments.

Additionally, we received net proceeds of $441.9 million from an equity offering.

Additionally, we received net proceeds of $719.1 million from equity offerings.

Future Capital Commitments

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The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of $0.1 billion for the remainder of 2021 and $1.0 billion and $2.0 billion for the years ending December 31, 2022 and 2023, respectively.

Anticipated non-newbuild capital expenditures for the remainder of 2021 are approximately $0.2 billion and approximately $0.5 billion for the year ended December 31, 2022, which includes health and safety investments.

Future expected capital expenditures will significantly increase our depreciation and amortization expense.

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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 impacts of

COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged.

The combined contract prices of the nine ships on order for delivery was approximately €7.6 billion, or $8.8 billion based on the euro/U.S.

dollar exchange rate as of June 30, 2021.

dollar exchange rate as of September 30, 2021.

We have obtained export credit financing which is expected to fund approximately 80% of the contract price of each ship, subject to certain conditions.

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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.

Capitalized interest for the three months ended June 30, 2021 and 2020 was $9.9 million and $5.6 million, respectively, and for the six months ended June 30, 2021 and 2020 was $18.0 million and $11.3 million, respectively, primarily associated with the construction of our newbuild ships.

Capitalized interest for the three months ended September 30, 2021 and 2020 was $12.5 million and $6.8 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $30.6 million and $18.1 million, respectively, primarily associated with the construction of our newbuild ships.

Off-Balance Sheet Arrangements

Contractual Obligations

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

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

Long-term debt (1)

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(3) Ship construction contracts are for our newbuild ships based on the euro/U.S.

dollar exchange rate as of June 30, 2021.

dollar exchange rate as of September 30, 2021.

Export credit financing is in place from syndicates of banks.

Approximately $196.2 million of the ship construction contracts due in less than one year are financed under export credit or other newbuild related financing.

Approximately $1.0 billion of the ship construction contracts due in less than one year are financed under export credit or other newbuild related financing.

(4) Port facilities represent our usage of certain port facilities.

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A portion of our port fees may be waived as a result of these provisions, including those ports that are presented within operating leases in the table above.

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

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

(6) Other includes future commitments for service, maintenance and other business enhancement capital expenditures contracts.

Certain contracts contain provisions which provide for reduced obligations in the case of a ship(s) removed from operations.

As a result, we may only be required to cover reasonable costs during the time period whereby our operations have temporarily been suspended.

These reasonable costs are subject to ongoing negotiations.

Certain service providers may require collateral in the normal course of our business.

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We have received certain financial and other debt covenant waivers through December 31, 2022 and added new free liquidity requirements.

At June 30, 2021, taking into account such waivers, we were in compliance with all of our debt covenants.

At September 30, 2021, taking into account such waivers, we were in compliance with all of our debt covenants.

In addition, our existing debt agreements restrict, and any of our future debt arrangements may restrict, among other things, the ability of our subsidiaries, including NCLC, to make distributions and/or pay dividends to NCLH and NCLH’s ability to pay cash dividends to its shareholders.

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However, we do not believe that these restrictions have had or are expected to have an impact on our ability to meet any cash obligations.

In light of the measures described under "Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures", we believe our cash on hand, expected future operating cash inflows and our ability to issue debt securities or additional equity securities, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next 12-month period.

In light of the measures described under "Update Regarding COVID-19 Pandemic—Financing Transactions and Cost Containment Measures", we believe our cash on hand, the recently completed $1 billion commitment, the return of a portion of the cash collateral from our credit card processors, expected future operating cash inflows and our ability to issue debt securities or additional equity securities, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next 12-month period.

Certain debt covenant waivers were received in 2021 to enable the Company to maintain this compliance.

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There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations.

Furthermore, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future if we are unable to resume our cruise voyages on the schedule expected, and particularly if a substantial portion of our fleet continues to have suspended cruise voyages for a prolonged period.

We also expect to opportunistically pursue refinancings and other balance sheet optimization transactions from time to time, which could include equity, equity-linked or debt financings.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis