Financial Presentation
Revenue from our cruise and cruise-related activities are categorized by us as “passenger ticket revenue” and “onboard and other revenue.” Passenger ticket revenue and onboard and other revenue vary according to product offering, the size of the ship in operation, the length of cruises operated and the markets in which the ship operates. Our revenue is seasonal based on demand for cruises, which has historically been strongest during the Northern Hemisphere’s summer months.
Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, and includes revenue for service charges and air and land transportation to and from the ship to the extent guests purchase these items from us. Onboard and other revenue primarily consists of revenue from gaming, beverage sales, shore excursions, specialty dining, retail sales, spa services, photo services as well as certain Bareboat Charter revenue. We record onboard revenue from onboard activities we perform directly or that are performed by independent concessionaires, from which we receive a share of their revenue.
Our cruise operating expense is classified as follows:
| • | Commissions, transportation and other primarily consists of direct costs associated with passenger ticket revenue. These costs include travel agent commissions, air and land transportation expenses, related credit card fees, costs associated with service charges, certain port expenses and the costs associated with shore excursions and hotel accommodations included as part of the overall cruise purchase price. |
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| • | Onboard and other primarily consists of direct costs that are incurred in connection with onboard and other revenue. These include costs incurred in connection with gaming, beverage sales and shore excursions. |
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| • | Payroll and related consists of the cost of wages and benefits for shipboard employees and costs of certain inventory items, including food, for a third party that provides crew and other hotel services for certain ships. |
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| • | Fuel includes fuel costs, the impact of certain fuel hedges and fuel delivery costs. |
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| • | Food consists of food costs for passengers and crew on certain ships. |
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| • | Other consists of repairs and maintenance (including Dry-dock costs), ship insurance and other ship expenses. |
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Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenue and expenses during the periods presented. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make these estimates and judgments. Actual results could differ materially from these estimates. We believe that the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our consolidated financial statements. These critical accounting policies, which are presented in detail in our notes to our audited consolidated financial statements, relate to ship accounting, asset impairment and contingencies.
Ship Accounting
Ships represent our most significant assets, and we record them at cost less accumulated depreciation. Depreciation of ships is computed on a straight-line basis over the estimated service lives of primarily 30 years after a 15% reduction for the estimated residual value of the ship. Improvement costs that we believe add value to our ships are capitalized to the ship and depreciated over the improvements’ estimated useful lives. Repairs and maintenance activities are charged to expense as incurred. We account for Dry-dock costs under the direct expense method which requires us to expense all Dry-dock costs as incurred.
We determine the useful life of our ships based primarily on our estimates of the average useful life of the ships’ major component systems, such as cabins, main diesels, main electric, superstructure and hull. In addition, we consider the impact of anticipated changes in the vacation market and technological conditions and historical useful lives of similarly-built ships. Given the large and complex nature of our ships, our accounting estimates related to ships and determinations of ship improvement costs to be capitalized require considerable judgment and are inherently uncertain. Should certain factors or circumstances cause us to revise our estimate of ship service lives or projected residual values, depreciation expense could be materially lower or higher. If circumstances cause us to change our assumptions in making determinations as to whether ship improvements should be capitalized, the amounts we expense each year as repairs and maintenance costs could increase, partially offset by a decrease in depreciation expense. If we reduced our estimated average 30-year ship service life by one year, depreciation expense for the year ended December 31, 2015 would have increased by $10.0 million. In addition, if our ships were estimated to have no residual value, depreciation expense for the same period would have increased by $49.2 million. We believe our estimates for ship accounting are reasonable and our methods are consistently applied. We believe that depreciation expense is based on a rational and systematic method to allocate our ships’ costs to the periods that benefit from the ships’ usage.
Asset Impairment
We review our long-lived assets, principally ships, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. We consider historical performance and future estimated results in our evaluation of potential impairment and then compare the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its fair value. We estimate fair value based on the best information available making whatever estimates, judgments and projections considered necessary. The estimation of fair value is generally measured by discounting expected future cash flows at discount rates commensurate with the risk involved.
Goodwill and other indefinite-lived assets, principally tradenames, are reviewed for impairment on an annual basis or earlier if there is an event or change in circumstances that would indicate that the carrying value of these assets could not be fully recovered. We use the Step 0 Test which allows us to first assess qualitative factors to determine whether it is more likely than not (i.e., more than 50%) that the fair value of a reporting unit is less than its carrying value. In order to make this evaluation, we consider the following circumstances:
| · | General macroeconomic conditions such as a deterioration in general economic conditions; limitations on accessing capital; fluctuations in foreign exchange rates; or other developments in equity and credit markets; |
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| · | Industry and market conditions such as a deterioration in the environment in which an entity operates; an increased competitive environment; a decline in market-dependent multiples or metrics (in both absolute terms and relative to peers); a change in the market for an entity’s products or services; or a regulatory or political development; |
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| · | Changes in cost factors that have a negative effect on earnings and cash flows; |
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| · | Overall financial performance (for both actual and expected performance); |
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| · | Entity and reporting unit specific events such as changes in management, key personnel, strategy, or customers; litigation; or a change in the composition or carrying amount of net assets; and |
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| · | Share price (in both absolute terms and relative to peers). |
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We believe our estimates and judgments with respect to our long-lived assets, principally ships, and goodwill and other indefinite-lived intangible assets are reasonable. Nonetheless, if there was a material change in assumptions used in the determination of such fair values or if there is a material change in the conditions or circumstances that influence such assets, we could be required to record an impairment charge. If a material change occurred, we may conduct a quantitative assessment comparing the fair value of each reporting unit to its carrying value, including goodwill. This is called the Step I Test which consists of a combined approach using the expected future cash flows and market multiples to determine the fair value of the reporting units.
As of December 31, 2015, our annual review consisting of the Step 0 and Step I Test supports the carrying value of these assets.
Contingencies
Periodically, we assess potential liabilities related to any lawsuits or claims brought against us or any asserted claims, including tax, legal and/or environmental matters. Although it is typically very difficult to determine the timing and ultimate outcome of such actions, we use our best judgment to determine if it is probable that we will incur an expense related to the settlement or final adjudication of such matters and whether a reasonable estimation of such probable loss, if any, can be made. In assessing probable losses, we take into consideration estimates of the amount of insurance recoveries, if any. In accordance with the guidance on accounting for contingencies, we accrue a liability when we believe a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recoveries, although we believe that our estimates and judgments are reasonable, it is possible that certain matters may be resolved for amounts materially different from any estimated provisions or previous disclosures.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures, such as Net Revenue, Adjusted Net Revenue, Net Yield, Adjusted Net Yield, Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Income and Adjusted EPS, to enable us to analyze our performance. See “Terms Used in this Annual Report” for the definitions of these non-GAAP financial measures. We utilize Net Revenue and Net Yield to manage our business on a day-to-day basis and believe that they are the most relevant measures of our revenue performance because they reflect the revenue earned by us net of significant variable costs. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance.
As our business includes the sourcing of passengers and deployment of vessels outside of the U.S., a portion of our revenue and expenses are denominated in foreign currencies, particularly British pound, Canadian dollar, euro and Australian dollar which are subject to fluctuations in currency exchange rates versus our reporting currency, the U.S. dollar. In order to monitor results excluding these fluctuations, we calculate certain non-GAAP measures on a Constant Currency basis whereby current period revenue and expenses denominated in foreign currencies are converted to U.S. dollars using currency exchange rates of the comparable period. We believe that presenting these non-GAAP measures on both a reported and Constant Currency basis is useful in providing a more comprehensive view of trends in our business.
We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance. We believe that Adjusted EBITDA is a useful measure in determining our performance as it reflects certain operating drivers of our business, such as sales growth, operating costs, marketing, general and administrative expense and other operating income and expense. Adjusted EBITDA is not a defined term under GAAP. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments and it includes other supplemental adjustments.
In addition, Adjusted Net Revenue and Adjusted Net Yield, which excludes certain business combination accounting entries, are non-GAAP financial measures that we believe are useful as supplemental measures in evaluating the performance of our operating business and provide greater transparency into our results of operations. Adjusted Net Income and Adjusted EPS are non-GAAP financial measures that exclude certain amounts and are used to supplement GAAP net income and EPS. We use Adjusted Net Income and Adjusted EPS as key performance measures of our earnings performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparison to our historical performance. The amounts excluded in the presentation of these non-GAAP financial measures may vary from period to period; accordingly, our presentation of Adjusted Net Revenue, Adjusted Net Yield, Adjusted Net Income and Adjusted EPS may not be indicative of future adjustments or results.
You are encouraged to evaluate each adjustment used in calculating our non-GAAP financial measures and the reasons we consider our non-GAAP financial measures appropriate for supplemental analysis. In evaluating our non-GAAP financial measures, you should be aware that in the future we may incur expenses similar to the adjustments in our presentation. Our non-GAAP financial measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of our non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our non-GAAP financial measures may not be comparable to other companies. Please see a historical reconciliation of these measures to the most comparable GAAP measure presented in our consolidated financial statements below in the “Results of Operations” section.
Summary of Significant 2015 Events
| · | In October, we took delivery of Norwegian Escape. |
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| · | In December, the Apollo Holders and Genting HK sold 10,342,055 ordinary shares of NCLH in a Secondary Equity Offering. In August and May, the Selling Shareholders sold an aggregate of 40,000,000 ordinary shares of NCLH in Secondary Equity Offerings. In March, Genting HK and the TPG Viking Funds sold 12,500,000 ordinary shares of NCLH in a Secondary Equity Offering. The Company did not receive any proceeds from these Secondary Equity Offerings. As of December 31, 2015, the approximate relative ownership percentages of NCLH’s ordinary shares were as follows: the Apollo Holders (15.8%), Genting HK (11.1%), the TPG Viking Funds (2.4%), and public shareholders (70.7%). |
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| · | In accordance with NCLH’s $500.0 million share repurchase program, NCLH may make repurchases in the open market, in privately negotiated transactions, or pursuant to accelerated share repurchase programs or structured share repurchase programs, and any repurchases may be made pursuant to Rule 10b5-1 plans. As of December 31, 2015, we have approximately $313.5 million of shares that may yet be repurchased under the program. |
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| · | We have expanded our international presence. We began with the announcement of our redeployment of Norwegian Star to the Australasia region which was followed by the opening of our sales office in Sydney, Australia that services our three brands. We also opened sales and marketing offices in Shanghai, Beijing, Hong Kong, China and Brazil. We announced our plans to introduce the first purpose-built ship customized for the China market in 2017. |
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Executive Overview
Total revenue increased 39.0% to $4.3 billion for the year ended December 31, 2015 compared to $3.1 billion for the year ended December 31, 2014. Net Revenue for the year ended December 31, 2015 increased 37.9% to $3.3 billion from $2.4 billion in the same period in 2014 with an improvement in both Net Yield of 17.4% and Capacity Days of 17.5%.
For the year ended December 31, 2015, we had net income attributable to NCLH and diluted EPS of $427.1 million and $1.86, respectively. Operating income increased 39.7% to $702.5 million for the year ended December 31, 2015 from $502.9 million for the year ended December 31, 2014.
We had Adjusted Net Income and Adjusted EPS of $662.7 million and $2.88, respectively, for the year ended December 31, 2015, which includes $235.5 million of adjustments primarily consisting of expenses related to the Acquisition of Prestige, non-cash compensation and certain other adjustments. A 39.8% improvement in Adjusted EBITDA was achieved for the same period primarily due to the increase in net income and EBITDA. We refer you to our “Results of Operations” below for a calculation of Net Revenue, Net Yield, Adjusted Net Income, Adjusted EPS and Adjusted EBITDA.
Results of Operations
We reported total revenue, total cruise operating expense, operating income and net income as follows (in thousands, except per share data):
| | Year Ended December 31, | | | | | | | | | | |
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| | 2015 | | | | 2014 | | | | 2013 | | |
| Total revenue | | $ | 4,345,048 | | | $ | 3,125,881 | | | $ | 2,570,294 | |
| Total cruise operating expense | | $ | 2,655,449 | | | $ | 1,946,624 | | | $ | 1,657,659 | |
| Operating income | | $ | 702,486 | | | $ | 502,941 | | | $ | 395,887 | |
| Net income attributable to Norwegian Cruise Line Holdings Ltd. | | $ | 427,137 | | | $ | 338,352 | | | $ | 101,714 | |
| EPS: | | | | | | | | | | | | |
| Basic | | $ | 1.89 | | | $ | 1.64 | | | $ | 0.50 | |
| Diluted | | $ | 1.86 | | | $ | 1.62 | | | $ | 0.49 | |
The following table sets forth operating data as a percentage of total revenue:
| | Year Ended December 31, | | | | | | | | | | |
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| | 2015 | | | | 2014 | | | | 2013 | | |
| Revenue | | | | | | | | | | | | |
| Passenger ticket | | | 72.0 | % | | | 69.6 | % | | | 69.4 | % |
| Onboard and other | | | 28.0 | % | | | 30.4 | % | | | 30.6 | % |
| Total revenue | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| Cruise operating expense | | | | | | | | | | | | |
| Commissions, transportation and other | | | 17.6 | % | | | 16.1 | % | | | 17.7 | % |
| Onboard and other | | | 6.3 | % | | | 7.2 | % | | | 7.6 | % |
| Payroll and related | | | 15.3 | % | | | 14.5 | % | | | 13.3 | % |
| Fuel | | | 8.3 | % | | | 10.4 | % | | | 11.8 | % |
| Food | | | 4.1 | % | | | 5.4 | % | | | 5.3 | % |
| Other | | | 9.5 | % | | | 8.7 | % | | | 8.8 | % |
| Total cruise operating expense | | | 61.1 | % | | | 62.3 | % | | | 64.5 | % |
| Other operating expense | | | | | | | | | | | | |
| Marketing, general and administrative | | | 12.8 | % | | | 12.9 | % | | | 11.7 | % |
| Depreciation and amortization | | | 9.9 | % | | | 8.7 | % | | | 8.4 | % |
| Total other operating expense | | | 22.7 | % | | | 21.6 | % | | | 20.1 | % |
| Operating income | | | 16.2 | % | | | 16.1 | % | | | 15.4 | % |
| Non-operating income (expense) | | | | | | | | | | | | |
| Interest expense, net | | | (5.1 | )% | | | (4.9 | )% | | | (11.0 | )% |
| Other income (expense) | | | (1.1 | )% | | | (0.3 | )% | | | 0.1 | % |
| Total non-operating income (expense) | | | (6.2 | )% | | | (5.2 | )% | | | (10.9 | )% |
| Net income before income taxes | | | 10.0 | % | | | 10.9 | % | | | 4.5 | % |
| Income tax benefit (expense) | | | (0.2 | )% | | | 0.1 | % | | | (0.5 | )% |
| Net income | | | 9.8 | % | | | 11.0 | % | | | 4.0 | % |
| Net income attributable to non-controlling interest | | | — | % | | | 0.1 | % | | | — | % |
| Net income attributable to Norwegian Cruise Line Holdings Ltd. | | | 9.8 | % | | | 10.9 | % | | | 4.0 | % |
Due to the abbreviated period of consolidation of Prestige’s results in 2014, certain metrics are presented both on an as reported basis and a Norwegian Stand-alone basis.
The following table sets forth selected statistical information:
| | Year Ended December 31, | | | | | | | | | | | | | | |
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| | 2015 | | | | 2014 | | | | | | | | 2013 | | |
| | As Reported | | | | As Reported | | | | Norwegian Stand-alone | | | | As Reported | | |
| Passengers carried | | | 2,164,404 | | | | 1,933,044 | | | | 1,917,501 | | | | 1,628,278 | |
| Passenger Cruise Days | | | 16,027,743 | | | | 13,634,200 | | | | 13,403,000 | | | | 11,400,906 | |
| Capacity Days | | | 14,700,990 | | | | 12,512,459 | | | | 12,252,155 | | | | 10,446,216 | |
| Occupancy Percentage | | | 109.0 | % | | | 109.0 | % | | | 109.4 | % | | | 109.1 | % |
Net Revenue, Adjusted Net Revenue, Gross Yield, Net Yield and Adjusted Net Yield were calculated as follows (in thousands, except Capacity Days and Yield data):
| | Year Ended December 31, | | | | | | | | | | | | | | | | | | | | | | |
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| | 2015 | | | | | | | | 2014 | | | | | | | | | | | | 2013 | | |
| | As Reported | | | | Constant Currency | | | | As Reported | | | | Norwegian Stand-alone | | | | Norwegian Stand-alone Constant Currency | | | | As Reported | | |
| Passenger ticket revenue | | $ | 3,129,075 | | | $ | 3,203,661 | | | $ | 2,176,153 | | | $ | 2,079,610 | | | $ | 2,081,105 | | | $ | 1,784,439 | |
| Onboard and other revenue | | | 1,215,973 | | | | 1,215,973 | | | | 949,728 | | | | 934,576 | | | | 934,922 | | | | 785,855 | |
| Total revenue | | | 4,345,048 | | | | 4,419,634 | | | | 3,125,881 | | | | 3,014,186 | | | | 3,016,027 | | | | 2,570,294 | |
| Less: | | | | | | | | | | | | | | | | | | | | | | | | |
| Commissions, transportation and other expense | | | 765,298 | | | | 783,891 | | | | 503,722 | | | | 471,981 | | | | 474,466 | | | | 455,816 | |
| Onboard and other expense | | | 272,802 | | | | 272,802 | | | | 224,000 | | | | 218,033 | | | | 218,379 | | | | 195,526 | |
| Net Revenue | | | 3,306,948 | | | | 3,362,941 | | | | 2,398,159 | | | | 2,324,172 | | | | 2,323,182 | | | | 1,918,952 | |
| Non-GAAP Adjustment: | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred revenue (1) | | | 32,431 | | | | 32,431 | | | | 10,052 | | | | — | | | | — | | | | — | |
| Adjusted Net Revenue | | $ | 3,339,379 | | | $ | 3,395,372 | | | $ | 2,408,211 | | | $ | 2,324,172 | | | $ | 2,323,182 | | | $ | 1,918,952 | |
| Capacity Days | | | 14,700,990 | | | | 14,700,990 | | | | 12,512,459 | | | | 12,252,155 | | | | 12,252,155 | | | | 10,446,216 | |
| Gross Yield | | $ | 295.56 | | | $ | 300.64 | | | $ | 249.82 | | | $ | 246.01 | | | $ | 246.16 | | | $ | 246.05 | |
| Net Yield | | $ | 224.95 | | | $ | 228.76 | | | $ | 191.66 | | | $ | 189.69 | | | $ | 189.61 | | | $ | 183.70 | |
| Adjusted Net Yield | | $ | 227.15 | | | $ | 230.96 | | | $ | 192.47 | | | $ | 189.69 | | | $ | 189.61 | | | $ | 183.70 | |
| (1) | Reflects deferred revenue fair value adjustments related to the Acquisition of Prestige that were made pursuant to business combination accounting rules. |
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Gross Cruise Cost, Net Cruise Cost, Net Cruise Cost Excluding Fuel and Adjusted Net Cruise Cost Excluding Fuel were calculated as follows (in thousands, except Capacity Days and per Capacity Day data):
| | Year Ended December 31, | | | | | | | | | | | | | | | | | | | | | | |
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| | 2015 | | | | | | | | 2014 | | | | | | | | | | | | 2013 | | |
| | As Reported | | | | Constant Currency | | | | As Reported | | | | Norwegian Stand-alone | | | | Norwegian Stand-alone Constant Currency | | | | As Reported | | |
| Total cruise operating expense | | $ | 2,655,449 | | | $ | 2,683,776 | | | $ | 1,946,624 | | | $ | 1,863,781 | | | $ | 1,864,814 | | | $ | 1,657,659 | |
| Marketing, general and administrative expense | | | 554,999 | | | | 560,376 | | | | 403,169 | | | | 374,630 | | | | 374,080 | | | | 301,155 | |
| Gross Cruise Cost | | | 3,210,448 | | | | 3,244,152 | | | | 2,349,793 | | | | 2,238,411 | | | | 2,238,894 | | | | 1,958,814 | |
| Less: | | | | | | | | | | | | | | | | | | | | | | | | |
| Commissions, transportation and other expense | | | 765,298 | | | | 783,891 | | | | 503,722 | | | | 471,981 | | | | 474,466 | | | | 455,816 | |
| Onboard and other expense | | | 272,802 | | | | 272,802 | | | | 224,000 | | | | 218,033 | | | | 218,379 | | | | 195,526 | |
| Net Cruise Cost | | | 2,172,348 | | | | 2,187,459 | | | | 1,622,071 | | | | 1,548,397 | | | | 1,546,049 | | | | 1,307,472 | |
| Less: Fuel expense | | | 358,650 | | | | 358,650 | | | | 326,231 | | | | 315,345 | | | | 315,345 | | | | 303,439 | |
| Net Cruise Cost Excluding Fuel | | | 1,813,698 | | | | 1,828,809 | | | | 1,295,840 | | | | 1,233,052 | | | | 1,230,704 | | | | 1,004,033 | |
| Less Non-GAAP Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-cash share-based compensation related to the IPO (1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 18,527 | |
| Crew expenses (2) | | | 10,154 | | | | 10,154 | | | | 7,693 | | | | 7,693 | | | | 7,693 | | | | — | |
| Non-cash share-based compensation (3) | | | 42,211 | | | | 42,211 | | | | 20,627 | | | | 20,627 | | | | 20,627 | | | | 8,898 | |
| Secondary Equity Offerings’ expenses (4) | | | 2,226 | | | | 2,226 | | | | 2,075 | | | | 2,075 | | | | 2,075 | | | | 2,251 | |
| Severance payments and other fees (5) | | | 17,580 | | | | 17,580 | | | | — | | | | — | | | | — | | | | — | |
| Management NCL Corporation Units exchange expenses (6) | | | 624 | | | | 624 | | | | — | | | | — | | | | — | | | | — | |
| Acquisition of Prestige expenses (7) | | | 27,170 | | | | 27,170 | | | | 57,513 | | | | 48,566 | | | | 48,566 | | | | — | |
| Contingent consideration adjustment (8) | | | (43,400 | ) | | | (43,400 | ) | | | — | | | | — | | | | — | | | | — | |
| Contract termination expenses (9) | | | 3,319 | | | | 3,319 | | | | — | | | | — | | | | — | | | | — | |
| Other (10) | | | — | | | | — | | | | 3,804 | | | | 3,804 | | | | 3,804 | | | | 3,373 | |
| Adjusted Net Cruise Cost Excluding Fuel | | $ | 1,753,814 | | | $ | 1,768,925 | | | $ | 1,204,128 | | | $ | 1,150,287 | | | $ | 1,147,939 | | | $ | 970,984 | |
| Capacity Days | | | 14,700,990 | | | | 14,700,990 | | | | 12,512,459 | | | | 12,252,155 | | | | 12,252,155 | | | | 10,446,216 | |
| Gross Cruise Cost per Capacity Day | | $ | 218.38 | | | $ | 220.68 | | | $ | 187.80 | | | $ | 182.70 | | | $ | 182.73 | | | $ | 187.51 | |
| Net Cruise Cost per Capacity Day | | $ | 147.77 | | | $ | 148.80 | | | $ | 129.64 | | | $ | 126.38 | | | $ | 126.19 | | | $ | 125.16 | |
| Net Cruise Cost Excluding Fuel per Capacity Day | | $ | 123.37 | | | $ | 124.40 | | | $ | 103.56 | | | $ | 100.64 | | | $ | 100.45 | | | $ | 96.11 | |
| Adjusted Net Cruise Cost Excluding Fuel per Capacity Day | | $ | 119.30 | | | $ | 120.33 | | | $ | 96.23 | | | $ | 93.88 | | | $ | 93.69 | | | $ | 92.95 | |
| (1) | Non-cash share-based compensation expenses related to the IPO, which are included in marketing, general and administrative expense. |
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| (2) | Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense. |
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| (3) | Non-cash share-based compensation expense related to equity awards, which are included in marketing, general and administrative expense. |
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| (4) | Expenses related to the Secondary Equity Offerings, which are included in marketing, general and administrative expense. |
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| (5) | Severance payments and other expenses related to restructuring costs and other severance arrangements, which are included in marketing, general and administrative expense. |
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| (6) | Expenses related to the exchange of Management NCL Corporation Units for ordinary shares, which are included in marketing, general and administrative expense. |
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| (7) | Expenses related to the Acquisition of Prestige, which are included in marketing, general and administrative expense. |
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| (8) | Contingent consideration fair value adjustment related to the Acquisition of Prestige, which is included in marketing, general and administrative expense. |
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| (9) | Contract termination expenses related to the Acquisition of Prestige, which are included in other cruise operating expense. |
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| (10) | Expenses primarily related to the Corporate Reorganization and the settlement of a 2007 breach of contract claim, which are included in marketing, general and administrative expense. |
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Adjusted Net Income and Adjusted EPS were calculated as follows (in thousands, except share and per share data):
| | Year Ended December 31, | | | | | | | | | | | | | | |
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| | 2015 | | | | 2014 | | | | | | | | 2013 | | |
| | As Reported | | | | As Reported | | | | Norwegian Stand-alone | | | | As Reported | | |
| Net income attributable to Norwegian Cruise Line Holdings Ltd. | | $ | 427,137 | | | $ | 338,352 | | | $ | 369,724 | | | $ | 101,714 | |
| Net income attributable to non-controlling interest | | | — | | | | 4,249 | | | | 4,249 | | | | 1,172 | |
| Net income | | | 427,137 | | | | 342,601 | | | | 373,973 | | | | 102,886 | |
| Non-GAAP Adjustments: | | | | | | | | | | | | | | | | |
| Non-cash share-based compensation related to the IPO (1) | | | — | | | | — | | | | — | | | | 18,527 | |
| Crew expenses (2) | | | 10,154 | | | | 7,693 | | | | 7,693 | | | | — | |
| Non-cash share-based compensation (3) | | | 42,384 | | | | 20,627 | | | | 20,627 | | | | 9,408 | |
| Secondary Equity Offerings’ expenses (4) | | | 2,226 | | | | 2,075 | | | | 2,075 | | | | 2,251 | |
| Taxes related to changes in corporate structure (5) | | | — | | | | 5,247 | | | | 5,247 | | | | (5 | ) |
| Severance payments and other fees (6) | | | 17,580 | | | | — | | | | — | | | | — | |
| Debt related expenses (7) | | | — | | | | 15,397 | | | | 23,762 | | | | 160,573 | |
| Management NCL Corporation Units exchange expenses (8) | | | 624 | | | | — | | | | — | | | | — | |
| Acquisition of Prestige expenses (9) | | | 27,170 | | | | 57,513 | | | | 48,566 | | | | — | |
| Deferred revenue (10) | | | 32,431 | | | | 13,004 | | | | — | | | | — | |
| Amortization of intangible assets (11) | | | 72,917 | | | | 12,600 | | | | — | | | | — | |
| Contingent consideration adjustment (12) | | | (43,400 | ) | | | — | | | | — | | | | — | |
| Loss on extinguishment of debt (13) | | | 12,624 | | | | — | | | | — | | | | — | |
| Derivative loss (14) | | | 40,971 | | | | — | | | | — | | | | — | |
| Contract termination expenses (15) | | | 6,848 | | | | — | | | | — | | | | — | |
| Information technology write-off (16) | | | 12,988 | | | | — | | | | — | | | | — | |
| Other (17) | | | — | | | | 3,804 | | | | 3,804 | | | | 2,150 | |
| Adjusted Net Income | | $ | 662,654 | | | $ | 480,561 | | | $ | 485,747 | | | $ | 295,790 | |
| Diluted weighted-average shares outstanding-Net income and Adjusted Net Income | | | 230,040,132 | | | | 212,017,784 | | | | 209,684,848 | | | | 209,239,484 | |
| Diluted EPS | | $ | 1.86 | | | $ | 1.62 | | | $ | 1.78 | | | $ | 0.49 | |
| Adjusted EPS | | $ | 2.88 | | | $ | 2.27 | | | $ | 2.32 | | | $ | 1.41 | |
| (1) | Non-cash share-based compensation expenses related to the IPO, which are included in marketing, general and administrative expense. |
|---|
| (2) | Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense. |
|---|
| (3) | Non-cash share-based compensation expense related to equity awards, which are included in marketing, general and administrative expense. |
|---|
| (4) | Expenses related to the Secondary Equity Offerings, which are included in marketing, general and administrative expense. |
|---|
| (5) | Taxes related to the change in our corporate entity structure, which are included in income tax benefit (expense). |
|---|
| (6) | Severance payments and other expenses related to restructuring costs and other severance arrangements, which are included in marketing, general and administrative expense. |
|---|
| (7) | Write-off of deferred financing fees, premiums paid and other expenses related to prepayments of debt, which are included in interest expense, net. |
|---|
| (8) | Expenses related to the exchange of Management NCL Corporation Units for ordinary shares, which are included in marketing, general and administrative expense. |
|---|
| (9) | Expenses related to the Acquisition of Prestige, which are included in marketing, general and administrative expense. |
|---|
| (10) | Deferred revenue fair value adjustments related to the Acquisition of Prestige that were made pursuant to business combination accounting rules, which are primarily included in Net Revenue. |
|---|
| (11) | Amortization of intangible assets related to the Acquisition of Prestige, which are included in depreciation and amortization expense. |
|---|
| (12) | Contingent consideration fair value adjustment related to the Acquisition of Prestige, which is included in marketing, general and administrative expense. |
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| (13) | Loss on extinguishment of debt, which is included in interest expense, net. |
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| (14) | Losses of $(26.2) million for a foreign exchange collar which does not receive hedge accounting treatment and losses of $(14.7) million related to certain fuel swap derivative hedge contracts for the year ended December 31, 2015. |
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| (15) | Contract termination expenses related to the Acquisition of Prestige, which are included in other cruise operating expense and depreciation and amortization expense. |
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| (16) | Expenses related to the write-off of certain information technology items, which are included in depreciation and amortization expense. |
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| (17) | Expenses primarily related with the tax restructuring and costs related to the settlement of a 2007 breach of contract claim, which are included in marketing, general and administrative expense. |
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EBITDA and Adjusted EBITDA were calculated as follows (in thousands):
| | Year Ended December 31, | | | | | | | | | | | | | | |
|---|
| | 2015 | | | | 2014 | | | | | | | | 2013 | | |
| | As Reported | | | | As Reported | | | | Norwegian Stand-alone | | | | As Reported | | |
| Net income attributable to Norwegian Cruise Line Holdings Ltd. | | $ | 427,137 | | | $ | 338,352 | | | $ | 369,724 | | | $ | 101,714 | |
| Interest expense, net | | | 221,909 | | | | 151,754 | | | | 150,871 | | | | 282,602 | |
| Income tax expense (benefit) | | | 6,772 | | | | (2,267 | ) | | | (2,279 | ) | | | 11,802 | |
| Depreciation and amortization expense | | | 432,114 | | | | 273,147 | | | | 253,153 | | | | 215,593 | |
| EBITDA | | | 1,087,932 | | | | 760,986 | | | | 771,469 | | | | 611,711 | |
| Net income attributable to non-controlling interest | | | — | | | | 4,249 | | | | 4,249 | | | | 1,172 | |
| Other (income) expense | | | 46,668 | | | | 10,853 | | | | 57 | | | | (1,403 | ) |
| Non-cash share-based compensation related to the IPO (1) | | | — | | | | — | | | | — | | | | 18,527 | |
| Crew expenses (2) | | | 10,154 | | | | 7,693 | | | | 7,693 | | | | — | |
| Non-cash share-based compensation (3) | | | 42,211 | | | | 20,627 | | | | 20,627 | | | | 11,623 | |
| Secondary Equity Offerings’ expenses (4) | | | 2,226 | | | | 2,075 | | | | 2,075 | | | | 2,251 | |
| Severance payments and other fees (5) | | | 17,580 | | | | — | | | | — | | | | — | |
| Management NCL Corporation Units exchange expenses (6) | | | 624 | | | | — | | | | — | | | | — | |
| Acquisition of Prestige expenses (7) | | | 27,170 | | | | 57,513 | | | | 48,566 | | | | — | |
| Deferred revenue (8) | | | 32,431 | | | | 10,052 | | | | — | | | | — | |
| Contingent consideration adjustment (9) | | | (43,400 | ) | | | — | | | | — | | | | — | |
| Contract termination expenses (10) | | | 3,319 | | | | — | | | | — | | | | — | |
| Other (11) | | | — | | | | 3,804 | | | | 3,804 | | | | 3,314 | |
| Adjusted EBITDA | | $ | 1,226,915 | | | $ | 877,852 | | | $ | 858,540 | | | $ | 647,195 | |
| (1) | Non-cash share-based compensation expenses related to the IPO, which are included in marketing, general and administrative expense. |
|---|
| (2) | Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense. |
|---|
| (3) | Non-cash share-based compensation expense related to equity awards, which are included in marketing, general and administrative expense. |
|---|
| (4) | Expenses related to the Secondary Equity Offerings, which are included in marketing, general and administrative expense. |
|---|
| (5) | Severance payments and other expenses related to restructuring costs and other severance arrangements, which are included in marketing, general and administrative expense. |
|---|
| (6) | Expenses related to the exchange of Management NCL Corporation Units for ordinary shares, which are included in marketing, general and administrative expense. |
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| (7) | Expenses related to the Acquisition of Prestige, which are included in marketing, general and administrative expense. |
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| (8) | Deferred revenue fair value adjustments related to the Acquisition of Prestige that were made pursuant to business combination accounting rules, which are primarily included in Net Revenue. |
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| (9) | Contingent consideration fair value adjustment related to the Acquisition of Prestige, which is included in marketing, general and administrative expense. |
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| (10) | Contract termination expenses related to the Acquisition of Prestige, which are included in other cruise operating expense. |
|---|
| (11) | Expenses primarily related with the tax restructuring and costs related to the settlement of a 2007 breach of contract claim, which are included in marketing, general and administrative expense. |
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Year Ended December 31, 2015 (“2015”) Compared to Year Ended December 31, 2014 (“2014”)
Revenue
Total revenue increased 39.0% to $4.3 billion in 2015 compared to $3.1 billion in 2014. Net Revenue increased 37.9% in 2015, primarily due to an increase in Capacity Days of 17.5% and Net Yield of 17.4%. The increase in Capacity Days was primarily due to the Acquisition of Prestige, the delivery of Norwegian Escape and the operation of Norwegian Getaway for the full year of 2015. The increase in Net Yield was primarily due to an increase in passenger ticket pricing and higher onboard and other revenue. Adjusted Net Revenue for 2015 includes a deferred revenue fair value adjustment of $32.4 million related to the Acquisition of Prestige. On a Constant Currency basis, Net Yield and Adjusted Net Yield increased 19.4% and 20.0%, respectively, in 2015 compared to 2014.
Expense
Total cruise operating expense increased 36.4% in 2015 compared to 2014 primarily due to the increase in Capacity Days as discussed above. Total other operating expense increased 46.0% in 2015 compared to 2014 primarily due to an increase in marketing, general and administrative expenses primarily related to the Acquisition of Prestige including certain restructuring and severance costs, as well as amortization expense related to the Prestige intangible assets and depreciation expense related to the Prestige ships. These increases were partially offset by the $43.4 million fair value adjustment for the contingent consideration related to the Acquisition of Prestige.
On a Capacity Day basis, Net Cruise Cost increased 14.0% (14.8% on a Constant Currency basis) due to an increase in marketing, general and administrative expenses as discussed above and certain crew related expenses, partially offset by a decrease in fuel expense which was primarily the result of a 13.8% decrease in the average fuel price to $539 per metric ton in 2015 from $625 per metric ton in 2014. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 24.0% (25.0% on a Constant Currency basis) primarily due to the increase in expenses discussed above.
Interest expense, net increased to $221.9 million in 2015 from $151.8 million in 2014 primarily due to an increase in average debt outstanding in connection with the Acquisition of Prestige. Other income (expense) was an expense of $46.7 million in 2015 compared to an expense of $10.9 million in 2014. This increase was primarily related to an expense of $30.7 million from the dedesignation of certain fuel swap derivative hedge contracts and the ineffectiveness of settled fuel swaps in 2015. Also included in 2015 was an expense of $26.2 million related to the fair value adjustment of a foreign exchange collar which does not receive hedge accounting treatment partially offset by $11.0 million of foreign currency transaction gains.
We had an income tax expense of $6.8 million in 2015 compared to an income tax benefit of $2.3 million in 2014. During the fourth quarter of 2013, we completed the implementation of a global tax platform, which had a favorable impact on the amount of income subject to U.S. corporate tax which continued through calendar year 2014 and 2015. In addition, during the first quarter of 2014, we received information which allowed us to elect a tax method to calculate deductible interest expense resulting in a tax benefit of $11.1 million including a $5.3 million non-recurring benefit that has been excluded from Adjusted Net Income and Adjusted EPS for the year ended December 31, 2014.
Year Ended December 31, 2014 (“2014”) Compared to Year Ended December 31, 2013 (“2013”)
Revenue
Total revenue increased 21.6% to $3.1 billion in 2014 compared to $2.6 billion in 2013. Net Revenue increased 25.0% in 2014, primarily due to an increase in Capacity Days of 19.8%. The increase in Capacity Days was primarily due to the delivery of Norwegian Breakaway in April 2013 and Norwegian Getaway in January 2014. The Net Yield improvement of 4.3% was due to higher net ticket and net onboard and other revenue. Adjusted Net Revenue for 2014 includes a deferred revenue fair value adjustment of $10.1 million related to the Acquisition of Prestige. The improvement in Adjusted Net Yield was primarily the result of a 3.3% increase in Norwegian Stand-alone Net Yield (3.2% on a Constant Currency basis) and partially due to the addition of Prestige’s brands to the fleet.
Expense
Total cruise operating expense increased 17.4% in 2014 compared to 2013 primarily due to the increase in Capacity Days as discussed above. Total other operating expense increased 30.9% in 2014 compared to 2013 primarily due to transaction expenses related to the Acquisition of Prestige and certain inaugural and launch-related costs for Norwegian Getaway and an increase in depreciation and amortization expense related to the addition of Norwegian Breakaway and Norwegian Getaway. On a Capacity Day basis, Net Cruise Cost increased 3.6% due to the increase in expenses explained above partially offset by a decrease in fuel expense. The fuel price per metric ton, excluding the impact of hedges was $605 in 2014 compared to $686 in 2013. We experienced a negative impact in 2014 of $10.3 million on our hedge portfolio due to recent reductions in fuel prices compared to a benefit of $4.7 million in 2013. Net of hedges, fuel price per metric ton decreased to $625 in 2014 compared to $675 in 2013. The Company’s fuel consumption per capacity day decreased 3.1%. On a Capacity Day basis, Net Cruise Cost Excluding Fuel increased 7.8% primarily due to costs related to the Acquisition of Prestige and certain general and administrative costs and Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 3.5%. Adjusted Net Cruise Cost Excluding Fuel was relatively unchanged on a Norwegian Stand-alone Constant Currency basis.
Interest expense, net decreased to $151.8 million in 2014 from $282.6 million in 2013. Interest expense, net for 2014 reflected an increase in average debt outstanding associated with newbuild financings and debt incurred in connection with the Acquisition of Prestige, partially offset by lower interest rates from the benefits from the redemption of higher rate debt and refinancing transactions. In addition, 2014 reflects $15.4 million of expenses related to financing transactions in conjunction with the Acquisition of Prestige while 2013 reflects $160.6 million of expenses associated with debt prepayments.
In 2014 we had an income tax benefit of $2.3 million compared to an income tax expense of $11.8 million for 2013. During the fourth quarter of 2013, we completed the implementation of a global tax platform, which had a favorable impact on the amount of income subject to U.S. corporate tax. This favorable impact continued through calendar year 2014. In addition, during the first quarter of 2014, we received information which allowed us to elect a tax method to calculate deductible interest expense which resulted in a tax benefit of $11.1 million including a $5.2 million non-recurring benefit.
Liquidity and Capital Resources
General
As of December 31, 2015, our liquidity was $665.9 million consisting of $115.9 million in cash and cash equivalents and $550.0 million available under our revolving credit facility. Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service.
As of December 31, 2015, we had a working capital deficit of $2.0 billion. This deficit included $1.0 billion of advance ticket sales, which represents the total revenue we collect in advance of sailing dates and accordingly are substantially more like deferred revenue balances rather than actual current cash liabilities. Our business model, along with our revolving credit facility, allows us to operate with a working capital deficit and still meet our operating, investing and financing needs.
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 to pay dividends to NCLH and our ability to pay cash dividends to our shareholders. We are a holding company and depend upon our subsidiaries for their ability to pay distributions to us to finance any dividend or pay any other obligations of NCLH. However, we do not believe that these restrictions have had or are expected to have an impact on our ability to meet any cash obligations.
Sources and Uses of Cash
In this section, references to 2015 refer to the year ended December 31, 2015, references to 2014 refer to the year ended December 31, 2014 and references to 2013 refer to the year ended December 31, 2013.
Net cash provided by operating activities was $1.0 billion in 2015 compared to $635.6 million in 2014 and $475.3 million in 2013. The change in net cash provided by operating activities in 2015 reflects net income of $427.1 million, as well as timing differences in cash receipts and payments relating to operating assets and liabilities and advance ticket sales of $218.3 million in 2015 compared to $(23.9) million in 2014. The change in net cash provided by operating activities in 2014 reflects net income of $342.6 million compared to net income in 2013 of $102.9 million, as well as timing differences in cash receipts and payments relating to operating assets and liabilities. The net income in 2013 included fees of $124.2 million related to prepayment of debt and $11.4 million of deferred income taxes.
Net cash used in investing activities was $1.2 billion in 2015, primarily related to payments for our newbuild ships, the delivery of Norwegian Escape, ship improvements and shoreside projects. Net cash used in investing activities was $1.8 billion in 2014, primarily due to payments related to (i) the Acquisition of Prestige (ii) the delivery of Norwegian Getaway, and (iii) our Breakaway Plus Class Ships and other ship improvements and shoreside projects. Net cash used in investing activities was $894.9 million in 2013, primarily related to the payments for construction and delivery of Norwegian Breakaway and construction of Norwegian Getaway, as well as other ship improvements and shoreside projects.
Net cash provided by financing activities was $196.2 million in 2015, primarily from the issuance of our $600.0 million 4.625% senior unsecured notes, borrowings related to our revolving loan facility and our Breakaway three loan facility for the delivery of Norwegian Escape, partially offset by redemption of our $300.0 million 5.00% senior unsecured notes due 2018 and repayments on our revolving loan facility and other loan facilities. Net cash provided by financing activities was $1.2 billion in 2014, primarily due to borrowings of an incremental $700.0 million under our $1.4 billion term loan facility, our $350.0 million senior secured term loan facility and borrowings under the Breakaway two loan and credit facilities related to our Breakaway Plus Class Ships partially offset by repayments of our revolving credit facility and other borrowings. In November 2014, we also issued the $680.0 million 5.25% senior unsecured notes. Net cash provided by financing activities was $430.5 million in 2013, primarily due to the issuance of our $300.0 million 5% senior unsecured notes as well as borrowings under other credit facilities and the proceeds from the issuance of ordinary shares partially offset by repayments of our $450.0 million 11.75% senior secured notes and revolving credit facilities, and a payment related to the Norwegian Sky Purchase Agreement.
Future Capital Commitments
Future capital commitments consist of contracted commitments, including ship construction contracts, and future expected capital expenditures necessary for operations. As of December 31, 2015, anticipated capital expenditures were $1.0 billion, $1.1 billion and $1.2 billion for each of the years ending December 31, 2016, 2017 and 2018, respectively, of which we have export credit financing in place for the expenditures related to ship construction contracts of $0.5 billion for 2016, $0.6 billion for 2017 and $0.7 billion for 2018.
Norwegian Escape was delivered in October 2015. We have three other Breakaway Plus Class Ships on order with Meyer Werft shipyard for delivery in the spring of 2017, spring of 2018 and fall of 2019. These ships will be the largest in our fleet, reaching approximately 164,600 Gross Tons. The combined contract price of these three ships is approximately €2.5 billion, or $2.7 billion based on the euro/U.S. dollar exchange rate as of December 31, 2015. We have export credit financing in place that provides financing for 80% of their contract prices. We also have a contract with Fincantieri shipyard to build a cruise ship to be named Seven Seas Explorer. The original contract price of the ship is approximately €343.0 million, or approximately $372.6 million based on the euro/U.S. dollar exchange rate as of December 31, 2015. We have export credit financing in place that provides financing for 80% of the ship’s contract price. Seven Seas Explorer is expected to be delivered in the summer of 2016.
In connection with the contracts to build these ships, we do not anticipate any contractual breaches or cancellation to occur. However, if any would occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us, subject to certain refund guarantees, and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.
Capitalized interest for the years ended December 31, 2015, 2014 and 2013 was $31.9 million, $22.0 million and $26.3 million, respectively, primarily associated with the construction of our newbuild ships.
Off-Balance Sheet Transactions
None.
Contractual Obligations
As of December 31, 2015, our contractual obligations, with initial or remaining terms in excess of one year, including interest payments on long-term debt obligations, were as follows (in thousands):
| | Total | | | | Less than 1 year | | | | 1-3 years | | | | 3-5 years | | | | More than 5 years | | |
|---|
| Long-term debt(1) | | $ | 6,502,834 | | | $ | 629,840 | | | $ | 1,974,456 | | | $ | 2,015,644 | | | $ | 1,882,894 | |
| Due to Affiliate(2) | | | 20,769 | | | | 20,769 | | | | — | | | | — | | | | — | |
| Operating leases(3) | | | 156,680 | | | | 12,448 | | | | 27,268 | | | | 28,150 | | | | 88,814 | |
| Ship construction contracts(4) | | | 2,992,057 | | | | 536,815 | | | | 1,697,128 | | | | 758,114 | | | | — | |
| Port facilities(5) | | | 185,834 | | | | 33,217 | | | | 49,544 | | | | 42,184 | | | | 60,889 | |
| Interest(6) | | | 929,245 | | | | 183,900 | | | | 357,167 | | | | 231,455 | | | | 156,723 | |
| Other(7) | | | 129,787 | | | | 54,548 | | | | 34,896 | | | | 15,572 | | | | 24,771 | |
| Total | | $ | 10,917,206 | | | $ | 1,471,537 | | | $ | 4,140,459 | | | $ | 3,091,119 | | | $ | 2,214,091 | |
| (1) | Includes premiums aggregating $0.7 million. Also includes capital leases. |
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| (2) | Primarily related to the purchase of Norwegian Sky. |
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| (3) | Primarily for offices, motor vehicles and office equipment. |
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| (4) | For our newbuild ships based on the euro/U.S. dollar exchange rate as of December 31, 2015. Export credit financing is in place from syndicates of banks. |
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| (5) | Primarily for our usage of certain port facilities. |
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| (6) | Includes fixed and variable rates with LIBOR held constant as of December 31, 2015. |
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| (7) | Future commitments for service, maintenance and other Business Enhancement Capital Expenditure contracts. |
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The table above does not include $11.2 million of unrecognized tax benefits (we refer you to the Notes to the Consolidated Financial Statements Note—11 “Income Tax”).
Other
Certain service providers may require collateral in the normal course of our business. The amount of collateral may change based on certain terms and conditions.
As a routine part of our business, depending on market conditions, exchange rates, pricing and our strategy for growth, we regularly consider opportunities to enter into contracts for the building of additional ships. We may also consider the sale of ships, potential acquisitions and strategic alliances. If any of these were to occur, they may be financed through the incurrence of additional permitted indebtedness, through cash flows from operations, or through the issuance of debt, equity or equity-related securities.
Funding Sources
Our debt agreements contain covenants that, among other things, require us to maintain a minimum level of liquidity, as well as limit our net funded debt-to-capital ratio, maintain certain other ratios and restrict our ability to pay dividends. Our ships and substantially all other property and equipment are pledged as collateral for our debt. We believe we were in compliance with these covenants as of December 31, 2015.
The impact of changes in world economies and especially the global credit markets has created a challenging environment and may reduce future consumer demand for cruises and adversely affect our counterparty credit risks. In the event this environment deteriorates, our business, financial condition and results of operations could be adversely impacted.
We believe our cash on hand, expected future operating cash inflows, additional available borrowings under our existing credit facility and our ability to issue debt securities or raise additional equity, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next twelve-month period. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations.
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