Edgar Filing: Norwegian Cruise Line Holdings Ltd.

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2013

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

For the transition period from to

Commission File Number: 001-35784

NORWEGIAN CRUISE LINE HOLDINGS LTD.

(Exact name of registrant as specified in its charter)

Bermuda

98-0691007

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

7665 Corporate Center Drive, Miami, Florida 33126

(Address of principal executive offices) (zip code)

(305) 436-4000

(Registrant’s telephone number, including area code)

N/A

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

There were 204,014,702 ordinary shares outstanding as of July 26, 2013.

TABLE OF CONTENTS


	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements		1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3. Quantitative and Qualitative Disclosures About Market Risk		24

Item 4. Controls and Procedures		25

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		26

Item 1A. Risk Factors		26

Item 6. Exhibits		26

SIGNATURES		29

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Operations

(unaudited, in thousands, except share and per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenue
Passenger ticket	$	457,619		$	416,219		$	816,547		$	767,549
Onboard and other		186,814			167,015			355,517			331,115

Total revenue		644,433			583,234			1,172,064			1,098,664

Cruise operating expense
Commissions, transportation and other		112,985			108,694			207,564			199,309
Onboard and other		49,316			44,009			91,687			83,210
Payroll and related		82,809			74,374			156,848			147,722
Fuel		75,582			71,615			148,080			137,141
Food		33,674			31,331			63,636			62,711
Other		66,713			57,718			115,953			109,675

Total cruise operating expense		421,079			387,741			783,768			739,768

Other operating expense
Marketing, general and administrative		74,111			61,807			159,317			132,969
Depreciation and amortization		53,854			46,680			102,602			92,477

Total other operating expense		127,965			108,487			261,919			225,446

Operating income		95,389			87,006			126,377			133,450

Non-operating income (expense)
Interest expense, net		(103,686	)		(48,905	)		(231,342	)		(95,075	)
Other income (expense)		429			(1,999	)		1,794			1,086

Total non-operating income (expense)		(103,257	)		(50,904	)		(229,548	)		(93,989	)

Net income (loss) before income taxes		(7,868	)		36,102			(103,171	)		39,461
Income tax expense, net		(1,047	)		(71	)		(3,244	)		(146	)

Net income (loss)		(8,915	)		36,031			(106,415	)		39,315
Net loss attributable to non-controlling interest		(74	)		—			(1,179	)		—

Net income (loss) attributable to Norwegian Cruise Line Holdings Ltd.	$	(8,841	)	$	36,031		$	(105,236	)	$	39,315

Weighted-average shares outstanding
Basic		203,997,492			178,199,155			201,189,562			178,178,612

Diluted		203,997,492			178,949,924			201,189,562			178,961,249

Earnings (loss) per share
Basic	$	(0.04	)	$	0.20		$	(0.52	)	$	0.22

Diluted	$	(0.04	)	$	0.20		$	(0.52	)	$	0.22

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

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Loss

(unaudited, in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net income (loss)	$	(8,915	)	$	36,031		$	(106,415	)	$	39,315

Other comprehensive loss, net of tax:
Shipboard Retirement Plan		117			98			234			196
Cash flow hedges:
Net unrealized loss related to cash flow hedges (1)		(9,064	)		(56,427	)		(28,620	)		(25,750	)
Amount realized and reclassified into earnings (2)		(236	)		(4,509	)		(2,011	)		(16,602	)

Total other comprehensive loss		(9,183	)		(60,838	)		(30,397	)		(42,156	)

Total comprehensive loss		(18,098	)		(24,807	)		(136,812	)		(2,841	)
Comprehensive loss attributable to non-controlling interest		(193	)		—			(1,788	)		—

Total comprehensive loss attributable to Norwegian Cruise Line Holdings Ltd.	$	(17,905	)	$	(24,807	)	$	(135,024	)	$	(2,841	)

(1)	Net of a deferred tax benefit of $657 and $797 for the three and six months ended June 30, 2013, respectively.

(2)	Net of a deferred tax expense of $12 and $73 for the three and six months ended June 30, 2013, respectively.

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

Norwegian Cruise Line Holdings Ltd.

Consolidated Balance Sheets

(unaudited, in thousands, except share data)


	June 30, 2013			December 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	82,840		$	45,500
Accounts receivable, net		16,370			15,062
Inventories		45,429			39,681
Prepaid expenses and other assets		56,380			64,686

Total current assets		201,019			164,929
Property and equipment, net		5,601,690			4,960,142
Goodwill and tradenames		611,330			611,330
Other long-term assets		174,594			202,026

Total assets	$	6,588,633		$	5,938,427

Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt	$	272,644		$	221,233
Accounts payable		97,100			79,126
Accrued expenses and other liabilities		221,673			231,040
Due to Affiliate		37,064			59,897
Advance ticket sales		542,602			353,793

Total current liabilities		1,171,083			945,089
Long-term debt		2,918,566			2,764,120
Due to Affiliate		73,276			147,364
Other long-term liabilities		41,415			63,070

Total liabilities		4,204,340			3,919,643

Commitments and contingencies (Note 8)
Shareholders’ equity:
Ordinary shares, $.001 par value; 490,000,000 shares authorized; 204,014,702 shares issued and outstanding at June 30, 2013, and $.0012 par value; 40,000,000 shares authorized; 21,000,000 shares issued and outstanding at December 31, 2012		204			25
Additional paid-in capital		2,805,277			2,327,097
Accumulated other comprehensive income (loss)		(47,407	)		(17,619	)
Retained earnings (deficit)		(404,421	)		(299,185	)

Total shareholders’ equity controlling interest		2,353,653			2,010,318
Non-controlling interest		30,640			8,466

Total shareholders’ equity		2,384,293			2,018,784

Total liabilities and shareholders’ equity	$	6,588,633		$	5,938,427

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

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Cash Flows

(unaudited, in thousands)


	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities
Net income (loss)	$	(106,415	)	$	39,315
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense		115,946			105,742
Gain on derivatives		(270	)		(429	)
Deferred income taxes, net		2,968			—
Write-off of deferred financing fees		36,357			2,358
Share-based compensation expense		19,356			330
Premium on debt issuance		—			6,000
Changes in operating assets and liabilities:
Accounts receivable, net		(1,308	)		(1,281	)
Inventories		(5,748	)		(1,552	)
Prepaid expenses and other assets		961			943
Accounts payable		17,974			(11,743	)
Accrued expenses and other liabilities		(14,909	)		10,257
Advance ticket sales		187,868			105,848

Net cash provided by operating activities		252,780			255,788

Cash flows from investing activities
Additions to property and equipment and other		(759,020	)		(174,973	)

Net cash used in investing activities		(759,020	)		(174,973	)

Cash flows from financing activities
Repayments of long-term debt		(2,081,520	)		(591,152	)
Repayments to Affiliate		(98,171	)		—
Proceeds from long-term debt		2,289,253			520,205
Proceeds from the issuance of ordinary shares, net		473,017			—
Other, primarily deferred financing fees		(38,999	)		(3,093	)

Net cash provided by (used in) financing activities		543,580			(74,040	)

Net increase in cash and cash equivalents		37,340			6,775
Cash and cash equivalents at beginning of period		45,500			58,926

Cash and cash equivalents at end of period	$	82,840		$	65,701

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

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Changes in Shareholders’ Equity

(unaudited, in thousands)


	Ordinary Shares		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Non-controlling Interest			Total
Balance, December 31, 2011	$	25	$	2,324,167		$	(19,794	)	$	(467,741	)	$	7,806		$	1,844,463
Share-based compensation		—		—			—			—			660			660
Transactions with Affiliates, net		—		2,930			—			—			—			2,930
Other comprehensive income		—		—			2,175			—			—			2,175
Net income		—		—			—			168,556			—			168,556

Balance, December 31, 2012		25		2,327,097			(17,619	)		(299,185	)		8,466			2,018,784
Share-based compensation		—		29,336			—			—			19			29,355
Transactions with Affiliates, net		—		(51	)		—			—			—			(51	)
Corporate Reorganization		—		(18,994	)		—			—			18,994			—
Proceeds from the issuance of ordinary shares, net		179		472,838			—			—			—			473,017
Other comprehensive loss		—		—			(29,788	)		—			(609	)		(30,397	)
Net loss		—		—			—			(105,236	)		(1,179	)		(106,415	)
Vesting of Management NCL Corporation Units		—		(4,949	)		—			—			4,949			—

Balance, June 30, 2013	$	204	$	2,805,277		$	(47,407	)	$	(404,421	)	$	30,640		$	2,384,293

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

Norwegian Cruise Line Holdings Ltd.

Notes to Consolidated Financial Statements

(unaudited)

Unless otherwise indicated or the context otherwise requires, references in this report to (i) the “Company,” “we,” “our,” “us” and “NCLH” refer to Norwegian Cruise Line Holdings Ltd., and/or its subsidiaries, (ii) “NCLC” refers to NCL Corporation Ltd. and/or its subsidiaries, (iii) “Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and its predecessors, (iv) “Apollo” refers to Apollo Global Management, LLC and its subsidiaries and the “Apollo Funds” refers to one or more of AIF VI NCL (AIV), L.P., AIF VI NCL (AIV II), L.P., AIF VI NCL (AIV III), L.P. and AIF VI NCL (AIV IV), L.P., AAA Guarantor Co-Invest VI (B), L.P., Apollo Overseas Partners (Delaware) VI, L.P., Apollo Overseas Partners (Delaware 892) VI, L.P., Apollo Overseas Partners VI, L.P. and Apollo Overseas Partners (Germany) VI, L.P., (v) “TPG Global” refers to TPG Global, LLC, “TPG” refers to TPG Global and its affiliates and the “TPG Viking Funds” refers to one or more of TPG Viking, L.P., TPG Viking AIV I, L.P., TPG Viking AIV II, L.P., and TPG Viking AIV III, L.P. and/or certain other affiliated investment funds, each an affiliate of TPG, (vi) “Genting HK” refers to Genting Hong Kong Limited and/or its affiliates and (vii) “Affiliate(s)” refers to Genting HK, the Apollo Funds and/or the TPG Viking Funds. References to the “U.S.” are to the United States of America, “dollars” or “$” are to U.S. dollars and “euros” or “€” are to the official currency of the Eurozone.

1.	Corporate Reorganization

In January 2013, NCLH completed the IPO of 27,058,824 ordinary shares, par value $.001 per share. In connection with the consummation of the IPO, NCLC’s ordinary shares were exchanged for the ordinary shares of NCLH, and NCLH became the owner of 100% of the ordinary shares (representing a 97.3% economic interest) and parent company of NCLC (the “Corporate Reorganization”). Accordingly, NCLH contributed $460.0 million to NCLC and the historical financial statements of NCLC became those of NCLH. As a result of the Corporate Reorganization, the Management NCL Corporation Units created a non-controlling interest within NCLH. The Corporate Reorganization was effected solely for the purpose of reorganizing our corporate structure. NCLH had not, prior to the completion of the Corporate Reorganization, conducted any activities other than those incidental to its formation and to preparations for the Corporate Reorganization and the IPO (we refer you to Note 5—“Related Party Disclosures” for more information on the Corporate Reorganization).

2.	Summary of Significant Accounting Policies

Basis of Presentation

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

Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the summer months. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012, which are included in our most recently filed Annual Report on Form 10-K.

Earnings

(Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to Norwegian Cruise Line Holdings Ltd. by the weighted-average shares outstanding during each period. Diluted earnings per share incorporates the incremental shares issuable upon conversion of potentially dilutive shares. A reconciliation between basic and diluted earnings (loss) per share was as follows (in thousands, except share and per share data):


	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Net income (loss) attributable to Norwegian Cruise Line Holdings Ltd.	$	(8,841	)	$	36,031	$	(105,236	)	$	39,315

Basic weighted-average shares outstanding		203,997,492			178,199,155		201,189,562			178,178,612
Dilutive effect of awards		—			750,769		—			782,637

Diluted weighted-average shares outstanding		203,997,492			178,949,924		201,189,562			178,961,249

Basic earnings (loss) per share	$	(0.04	)	$	0.20	$	(0.52	)	$	0.22

Diluted earnings (loss) per share	$	(0.04	)	$	0.20	$	(0.52	)	$	0.22

Diluted loss per share for the three and six months ended June 30, 2013, did not include 6,728,789 and 6,325,138 shares, respectively, because the effect of including them would have been antidilutive.

Revenue and Expense Recognition

Revenue and expense includes taxes assessed by governmental authorities that are directly imposed on a revenue-producing transaction between a seller and a customer. The amounts included in revenue and expense on a gross basis were $36.1 million and $34.1 million for the three months ended June 30, 2013 and 2012, respectively, and $67.5 million and $66.6 million for the six months ended June 30, 2013 and 2012, respectively.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” Significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification shall be disclosed in a note to the consolidated financial statements or presented parenthetically on the face of the financial statements (we refer you to Note 3— “Accumulated Other Comprehensive Income (Loss)).”

We have adopted the disclosure requirements as presented in the amendment to subtopic 210-20 “Disclosures about Offsetting Assets and Liabilities” which requires that we disclose separately for assets and liabilities the gross recognition and the offsetting amounts which are permitted by our master netting arrangements for our derivative contracts (we refer you to Note 7— “Fair Value Measurements and Derivatives”).

3.	Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) for the six months ended June 30, 2013 was as follows (in thousands):


	Accumulated Other Comprehensive Income (Loss)			Change Related to Cash Flow Hedges			Change Related to Shipboard Retirement Plan
Accumulated other comprehensive income (loss) at beginning of period	$	(17,619	)	$	(7,872	)	$	(9,747	)
Current period other comprehensive loss before reclassifications		(28,046	)		(28,046	)		—
Amounts reclassified from accumulated other comprehensive income (loss)		(1,742	)		(1,971	) (1)		229	(2)

Accumulated other comprehensive income (loss) at end of period	$	(47,407	)	$	(37,889	) (3)	$	(9,518	)

(1)	Amount reclassified to fuel expense.

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

(3)	Of the existing amounts related to derivatives designated as cash flow hedges, $5.0 million is expected to be reclassified into earnings in the next 12 months.

4.	Long-Term Debt

On June 21, 2013, NCLC and certain of its subsidiaries entered into supplemental deeds to the $334.1 million Norwegian Jewel loan, Breakaway/Getaway Term Loan Facilities, €258.0 million Pride of America loan, and €308.1 million Pride of Hawai’i loan. The supplemental deeds amended and restated those credit facilities, reducing the interest rate per annum to a rate equal to the sum of (a) an adjusted LIBOR rate, (b) an applicable margin of 0.95% and (c) certain customary mandatory costs to compensate lenders for the cost of compliance with various financial regulations. In connection with these amendments, we terminated the €40.0 million secured loan agreement, dated as of April 4, 2003, as amended and restated on June 1, 2012, by and among Pride of America Ship Holding, LLC, as borrower, and a syndicate of international banks, and related guarantee by NCLC which had an aggregate outstanding principal balance thereunder of $16.8 million.

On May 24, 2013, NCLC entered into a credit agreement which provides senior secured financing of $1.3 billion, consisting of (i) a $675 million term loan facility maturing on May 24, 2018 (the “Term Loan Facility”), all of which was borrowed for the purpose of refinancing existing senior debt; and (ii) a $625 million revolving credit facility maturing on May 24, 2018 (the “Revolving Loan Facility” and together with the Term Loan Facility, the “new senior secured credit facilities”), $208.0 million of which was borrowed as of June 30, 2013.

Borrowings under the new senior secured credit facilities bear interest at a rate per annum equal to (a) an adjusted LIBOR rate or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate of Deutsche Bank and (iii) the adjusted LIBOR rate, in each case plus an applicable margin that is determined by reference to a total leverage ratio, with an applicable margin of between 2.25% and 1.50% with respect to Eurocurrency loans and between 1.25% and 0.50% with respect to base rate loans. The initial applicable margin for borrowings is 2.25% with respect to Eurocurrency borrowings and 1.25% with respect to base rate borrowings.

In addition to paying interest on outstanding principal under the new senior secured credit facilities, a commitment fee rate is determined by reference to a total leverage ratio, with a maximum commitment fee rate of 40% of the applicable margin for Eurocurrency loans.

The Term Loan Facility will be paid in quarterly installments commencing in September 2013, in a principal amount equal to (a) in the case of installments payable on or prior to May 24, 2015, 1.25% of the loans outstanding immediately after the closing date under the Term Loan Facility and (b) in the case of installments payable after May 24, 2015, 2.50% of the loans outstanding immediately after the closing date under the Term Loan Facility, with the remaining unpaid principal amount of loans under the Term Loan Facility due and payable in full at maturity on May 24, 2018. Principal amounts outstanding under the Revolving Loan Facility are due and payable in full at maturity on May 24, 2018.

In connection with the entry into the new senior secured credit facilities, the $750.0 million Senior Secured Revolving Credit Facility and the €624.0 million Norwegian Pearl and Norwegian Gem Revolving Credit Facility were terminated. In addition, the remaining balance ($227.5 million) of 9.50% senior unsecured notes, plus premium and accrued and unpaid interest, were redeemed in full on June 28, 2013.

In April 2013, we took delivery of Norwegian Breakaway. To finance the payment due upon delivery, we drew $528.0 million of our €529.8 million Breakaway One Loan which is due April 2025. Also, we drew an aggregate of $57.7 million of our €126.1 million Norwegian Jewel Term Loan and €126.1 million Norwegian Jade Term Loan which will come due April 2016. The loans bear interest at LIBOR plus 1.6%.

In February 2013, NCLC issued $300.0 million aggregate principal amount of senior notes bearing interest at a rate of 5% per annum and maturing on February 15, 2018 (the “Notes Offering”). Interest on the notes will be payable semiannually on February 15 and August 15 of each year, commencing on August 15, 2013. The notes were issued at 99.451%.

We used the net proceeds that we received from the IPO and the Notes Offering, aggregating approximately $770.0 million, to pay down debt; including (i) a prepayment of an aggregate $55.6 million that became payable upon the consummation of the IPO consisting of $21.3 million on our €624.0 million Norwegian Pearl and Norwegian Gem Revolving Credit Facility, $14.7 million on our €308.1 million Pride of Hawai’i loan, $8.0 million on our $334.1 million Norwegian Jewel loan, $10.1 million on our €258.0 million Pride of America loan and $1.5 million on our €40.0 million Pride of America commercial loan, (ii) a payment to Genting HK of $79.7 million in connection with the Norwegian Sky purchase agreement, (iii) a full redemption of our $450.0 million 11.75% senior secured notes due 2016 and (iv) a partial redemption of $122.5 million aggregate principal amount of our 9.50% senior unsecured notes. Expenses related to these debt prepayments were approximately $90.5 million and were recognized in interest expense.

5.	Related Party Disclosures

Following the IPO, NCLH contributed $460.0 million to NCLC. The relative ownership percentages of NCLH’s ordinary shares following the IPO were as follows: Genting HK (43.4%), the Apollo Funds (32.5%), the TPG Viking Funds (10.8%) and public shareholders (13.3%). We also made a payment of $79.7 million to Genting HK in connection with the Norwegian Sky purchase agreement.

6.	Income Tax Expense, Net

NCLH is treated as a corporation for U.S. federal income tax purposes. For the six months ended June 30, 2013, income tax expense, net was $3.2 million, which consists of a one-time expense of $4.2 million due to a change in U.S. tax status from a partnership to a corporation in connection with our recent IPO, a benefit of $5.0 million in connection with our prepayments of debt, and a $4.0 million expense from our U.S. operations.

7.	Fair Value Measurements and Derivatives

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

Fair Value Hierarchy

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


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

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

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

Derivatives

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

We monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. Credit risk, including but not limited to counterparty non-performance under derivatives and our revolving credit facility, is not considered significant, as we primarily conduct business with large, well-established financial institutions that we have established relationships with and that have credit risks acceptable to us or the credit risk is spread out among a large number of creditors. We do not anticipate non-performance by any of our significant counterparties. The following table sets forth the fair value of our derivatives including the balance sheet location (in thousands):


		Asset				Liability
	Balance Sheet location	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
Fuel swaps designated as hedging instruments
	Prepaid expenses and other assets	$	515	$	5,955	$	426	$	876

	Other long-term assets		—		3,969		—		388

	Accrued expenses and other liabilities		1,514		188		4,548		204

	Other long-term liabilities		589		391		5,075		42
Fuel collars designated as hedging instruments
	Prepaid expenses and other assets		111		1,615		30		530

	Accrued expenses and other liabilities		385		51		391		69

	Other long-term liabilities		406		1,908		533		1,230


		Asset				Liability
	Balance Sheet location	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
Fuel options not designated as hedging instruments
	Prepaid expenses and other assets		—		—		30		304

	Accrued expenses and other liabilities		—		—		391		—

	Other long-term liabilities		—		—		533		1,231
Foreign currency options designated as hedging instruments
	Accrued expenses and other liabilities		—		—		19,949		20,267

	Other long-term liabilities		—		—		—		16,443
Foreign currency forward contracts designated as hedging instruments
	Prepaid expenses and other assets		—		11,685		—		—
Foreign currency collar designated as a hedging instrument
	Prepaid expenses and other assets		6,886		—		1,009		—

	Other long-term assets		—		9,765		—		1,613

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

Our derivative contracts include rights of offset with our counterparties. We have elected to net certain assets and liabilities within counterparties. We are not required to post cash collateral related to our derivative instruments. The following table discloses the amounts recognized within assets and liabilities (in thousands):


June 30, 2013	Gross Amounts		Gross Amounts Offset			Total Net Amounts		Gross Amounts Not Offset			Net Amounts
Assets	$	7,512	$	(1,495	)	$	6,017	$	—		$	6,017
Liabilities		31,420		(2,894	)		28,526		(19,949	)		8,577

December 31, 2012	Gross Amounts		Gross Amounts Offset			Total Net Amounts		Gross Amounts Not Offset			Net Amounts
Assets	$	32,989	$	(3,711	)	$	29,278	$	(11,685	)	$	17,593
Liabilities		39,486		(2,538	)		36,948		(36,710	)		238

Fuel Swaps

As of June 30, 2013, we had fuel swaps maturing through December 31, 2015 which are used to mitigate the financial impact of volatility in fuel prices pertaining to approximately 761,000 metric tons of our projected fuel purchases. The effects of the fuel swaps on the consolidated financial statements which were designated as cash flow hedges were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Loss recognized in other comprehensive loss – effective portion	$	(18,074	)	$	(34,283	)	$	(13,368	)	$	(7,819	)
Loss recognized in other income (expense) – ineffective portion		(320	)		(1,843	)		(99	)		(599	)
Amount reclassified from accumulated other comprehensive income (loss) into fuel expense		(736	)		(3,093	)		(2,999	)		(12,332	)

Fuel Collars and Options

As of June 30, 2013, we had fuel collars and fuel options maturing through December 31, 2014 which are used to mitigate the financial impact of volatility in fuel prices pertaining to approximately 52,000 metric tons of our projected fuel purchases. The effects of the fuel collars on the consolidated financial statements which were designated as cash flow hedges were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Loss recognized in other comprehensive loss – effective portion	$	(1,500	)	$	(11,674	)	$	(1,535	)	$	(2,619	)
Gain (loss) recognized in other income (expense) – ineffective portion		14			(1,019	)		22			(337	)
Amount reclassified from accumulated other comprehensive income (loss) into fuel expense		391			(1,416	)		818			(4,270	)

The effects of the fuel options on the consolidated financial statements which were not designated as hedging instruments were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013		2012
Gain (loss) recognized in other income (expense)	$	(275	)	$	(366	)	$	581	$	1,715

Foreign Currency Options

As of June 30, 2013, we had foreign currency derivatives consisting of call options with deferred premiums which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. If the spot rate at the date the ships are delivered is less than the strike price under these option contracts, we would pay the deferred premium and not exercise the foreign currency options. The notional amount of our foreign currency options was €175.0 million, or $227.7 million based on the euro/U.S. dollar exchange rate as of June 30, 2013. The effects of the foreign currency options on the consolidated financial statements which were designated as cash flow hedges were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Loss recognized in other comprehensive loss – effective portion	$	(341	)	$	(12,193	)	$	(4,353	)	$	(17,035	)
Loss recognized in other income (expense) – ineffective portion		(22	)		(81	)		(320	)		(350	)
Amount reclassified from accumulated other comprehensive income (loss) into depreciation expense		117			—			117			—

Foreign Currency Forward Contracts

We had foreign currency forward contracts which matured in April 2013. The effects of the foreign currency forward contracts on the consolidated financial statements which were designated as cash flow hedges were as follows (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Gain (loss) recognized in other comprehensive loss – effective portion	$	8,747		$	1,723	$	(7,886	)	$	1,723
Gain (loss) recognized in other income (expense) – ineffective portion		(2	)		—		66			—
Amount reclassified from accumulated other comprehensive income (loss) into depreciation expense		(20	)		—		(20	)		—

As of June 30, 2013, the effects of the foreign currency forward contracts on the consolidated financial statements which were not designated as hedging instruments were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Gain recognized in other income (expense)	$	—	$	—	$	20	$	—

Foreign Currency Collar

As of June 30, 2013, we had a foreign currency collar used to mitigate the volatility of foreign currency exchange rates related to our ship construction contracts denominated in euros. The notional amount of our foreign currency collar was €100.0 million, or $130.1 million based on the euro/U.S. dollar exchange rate as of June 30, 2013. The effects of the foreign currency collar on the consolidated financial statements which was designated as a cash flow hedge was as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013			2012
Gain (loss) recognized in other comprehensive loss – effective portion	$	1,447	$	—	$	(2,275	)	$	—

Long-Term Debt

As of June 30, 2013 and December 31, 2012, the fair value of our long-term debt, including the current portion, was $3,093.2 million and $3,106.9 million, which was $98.0 million and $121.5 million higher, respectively, than the carrying values. The difference between the fair value and carrying value of our long-term debt is due to our fixed and variable rate debt obligations carrying interest rates that are above or below market rates at the measurement dates. The fair value of our long-term debt was calculated based on estimated rates for the same or similar instruments with similar terms and remaining maturities. The calculation of the fair value of our long-term debt is considered a Level 2 input.

Other

The carrying amounts reported in the consolidated balance sheets of all financial assets and liabilities other than our long-term debt approximate fair value.

8.	Commitments and Contingencies

Ship Construction Contracts

Norwegian Getaway is under construction with Meyer Werft and is scheduled for delivery in January 2014. This ship will be approximately 144,000 Gross Tons with 4,000 Berths at an aggregate cost of approximately €625.9 million, or $814.3 million based on the euro/U.S. dollar exchange rate as of June 30, 2013. We have export credit financing in place for this ship that provides financing for 90% of its contract price.

We have also ordered two additional cruise ships from Meyer Werft for delivery in the fourth quarter of 2015 and the first quarter of 2017. The new Breakaway Plus Class Ships will be the largest in our fleet at approximately 163,000 Gross Tons and 4,200 Berths each and will be similar in design and innovation to our Breakaway Class Ships. The combined contract cost of the two Breakaway Plus Class Ships is approximately €1.4 billion, or $1.8 billion based on the euro/U.S. dollar exchange rate as of June 30, 2013. We have export credit financing in place for these ships that provides financing for 80% of their contract price.

In connection with the contracts to build the 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 and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.

Litigation

In July 2009, a class action complaint was filed against NCL (Bahamas) Ltd. in the United States District Court, Southern District of Florida, on behalf of a purported class of crew members alleging inappropriate deductions of their wages pursuant to the Seaman’s Wage Act and wrongful termination resulting in a loss of retirement benefits. In December 2010, the Court denied the plaintiffs’ Motion for Class Certification. In February 2011, the plaintiffs filed a Motion for Reconsideration as to the Court’s Order on Class Certification which was denied. The Court tried six individual plaintiffs’ claims, and in September 2012 awarded wages aggregating approximately $100,000 to such plaintiffs. The plaintiffs have filed an appeal of the Court’s decision in the individual actions as well as the denial of the Class Certification. We intend to vigorously defend this appeal and are not able at this time to estimate the impact of these proceedings.

In May 2011, a class action complaint was filed against NCL (Bahamas) Ltd. in the United States District Court, Southern District of Florida, on behalf of a purported class of crew members alleging inappropriate deductions of their wages pursuant to the Seaman’s Wage Act and breach of contract. In July 2012, this action was stayed by the Court pending the outcome of the litigation commenced with the class action complaint filed in July 2009. We are vigorously defending this action and are not able at this time to estimate the impact of these proceedings.

In the normal course of our business, various other claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability is typically limited to our deductible amount. Nonetheless, the ultimate outcome of these claims and lawsuits that are not covered by insurance cannot be determined at this time. We have evaluated our overall exposure with respect to all of our threatened and pending litigation and, to the extent required, we have accrued amounts for all estimable probable losses associated with our deemed exposure. We are currently unable to estimate any other potential contingent losses beyond those accrued, as discovery is not complete nor is adequate information available to estimate such range of loss or potential recovery. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery.

9.	Subsequent Event

In July 2013, we confirmed an order with Meyer Werft to proceed with the construction of the second Breakaway Plus Class Ship to be delivered in the first quarter of 2017. The contract cost of this second Breakaway Plus Class Ship is approximately €698.4 million, or $908.6 million based on the euro/U.S. dollar exchange rate as of June 30, 2013. We have export credit financing in place for this ship that provides financing for 80% of its contract price.

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

Cautionary Statement Concerning Forward-Looking Statements

Certain statements in this report constitute forward-looking statements 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 in this report, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects and objectives of management for future operations (including development plans and objectives relating to our activities), are forward-looking statements. Many, but not all of these statements can be found by looking for words like “expect,” “anticipate,” “goal,” “project,” “plan,” “believe,” “seek,” “will,” “may,” “forecast,” “estimate,” “intend” and “future” and for similar words. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to:

•

the adverse impact of the worldwide economic downturn and related factors such as high levels of unemployment and underemployment, declines in the securities and real estate markets, and perceptions of these conditions that decrease the level of disposable income of consumers or consumer confidence;

•

changes in cruise capacity, as well as capacity changes in the overall vacation industry;

•

intense competition from other cruise companies as well as non-cruise vacation alternatives which may affect our ability to compete effectively;

•

our substantial leverage, including the inability to generate the necessary amount of cash to service our existing debt, repay our credit facilities if payment is accelerated and incur substantial indebtedness in the future;

•

changes in fuel prices or other cruise operating costs;

•

the risks associated with operating internationally, including changes in interest rates and/or foreign currency rates;

•

the continued borrowing availability under our credit facilities and compliance with our financial covenants;

•

our ability to incur significantly more debt despite our substantial existing indebtedness;

•

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

•

adverse events impacting the security of travel that may affect consumer demand for cruises such as terrorist acts, acts of piracy, armed conflict and other international events;

•

the impact of any future changes relating to how travel agents sell and market our cruises;

•

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

•

the impact of delays, costs and other factors resulting from emergency ship repairs as well as scheduled repairs, maintenance and refurbishment of our ships;

•

the delivery schedules and estimated costs of new ships on terms that are favorable or consistent with our expectations;

•

the impact of problems encountered at shipyards, as well as, any potential claim, impairment loss, cancellation or breach of contract in connection with our contracts with shipyards;

•

the impact of the spread of contagious diseases;

•

accidents and other incidents affecting the health, safety, security and vacation satisfaction of guests or causing damage to ships, which could cause the modification of itineraries or cancellation of a cruise or series of cruises;

•

our ability to obtain insurance coverage on terms that are favorable or consistent with our expectations;

•

the impact of any breaches in data security or other disturbances to our information technology and other networks;

•

the continued availability of attractive port destinations;

•

the impact of weather and natural disasters;

•

our ability to attract and retain key personnel and qualified shipboard crew, maintain good relations with employee unions, maintain or renegotiate our collective bargaining agreements on favorable terms and prevent any disruptions in work;

•

the control of our Company by our Sponsors whose interests may not continue to be aligned with ours;

•

changes involving the tax, environmental, health, safety, security and other regulatory regimes in which we operate;

•

increases in our future fuel expenses related to implementing IMO regulations, which require the use of higher priced low sulfur fuels in certain cruising areas;

•

the implementation of regulations in the U.S. requiring U.S. citizens to obtain passports for travel to additional foreign destinations;

•

the impact of pending or threatened litigation and investigations; and

•

other factors set forth under “Risk Factors.”

The above examples are not exhaustive and new risks emerge from time to time. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking statements are based on our current beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment in which we will operate in the future. These forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based.

The interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2012, which are included in our most recently filed Annual Report on Form 10-K.

Terminology

For a reconciliation of our non-GAAP financial measures we refer you to “Results of Operations.” Unless otherwise indicated in this report, the following terms have the meanings set forth below:

•

$750.0 million Senior Secured Revolving Credit Facility. $750.0 million credit agreement, dated October 28, 2009, as amended, by and among NCL Corporation Ltd., as borrower, various lenders and Nordea Bank Norge ASA, and related guarantee by Norwegian Dawn Limited, Norwegian Sun Limited, Norwegian Spirit, Ltd. and Norwegian Star Limited, which was terminated in connection with our entry into the new senior secured credit facilities.

•

$334.1 million Norwegian Jewel loan. $334.1 million secured loan agreement, dated as of April 20, 2004, as amended and restated on June 21, 2013, by and among Norwegian Jewel Limited, as borrower, and a syndicate of international banks, and related guarantee by NCLC.

•

€126.1 million Norwegian Jade Term Loan. €126.1 million Pride of Hawai’i Credit Agreement, dated November 18, 2010, as amended and restated on June 21, 2013, by and among Pride of Hawaii LLC and a syndicate of international banks and a related guarantee by NCL Corporation Ltd.

•

€126.1 million Norwegian Jewel Term Loan. €126.1 million Norwegian Jewel Credit Agreement, dated November 18, 2010, as amended and restated on June 21, 2013, by and among Norwegian Jewel Limited and a syndicate of international banks and a related guarantee by NCL Corporation Ltd.

•

€258.0 million Pride of America loan. Euro 258.0 million secured loan agreement, dated as of April 4, 2003, as amended and restated on June 21, 2013, by and among Pride of America Ship Holding, LLC, as borrower, and a syndicate of international banks, and related guarantee by NCL Corporation Ltd.

•

€308.1 million Pride of Hawai’i loan. Euro 308.1 million Pride of Hawai’i loan, dated as of April 20, 2004, as amended and restated on June 21, 2013, by and among Pride of Hawaii, LLC, as borrower, and a syndicate of international banks, and related guarantee by NCL Corporation Ltd.

•

€529.8 million Breakaway One Loan. €529.8 million Breakaway One credit agreement, dated November 18, 2010, as amended, by and among Breakaway One, Ltd., as borrower, and a syndicate of international banks and a related guarantee by NCL Corporation Ltd.

•

€624.0 million Norwegian Pearl and Norwegian Gem Revolving Credit Facility. Euro 624.0 million revolving loan facility agreement, dated October 7, 2005, as amended and restated on June 1, 2012, by and among NCL Corporation Ltd., as borrower, and a syndicate of international banks, and related guarantee by Norwegian Pearl, Ltd. and Norwegian Gem, Ltd., which was terminated in connection with our entry into the new senior secured credit facilities.

•

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

•

Adjusted EPS. Diluted earnings (loss) per share adjusted for supplemental adjustments.

•

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

•

Adjusted Net Income. Net income adjusted for supplemental adjustments.

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

•

Breakaway Class Ships. Norwegian Breakaway delivered in April 2013 and Norwegian Getaway scheduled for delivery in January 2014.

•

Breakaway/Getaway Term Loan Facilities. €126.1 million Pride of Hawai’i Credit Agreement, dated November 18, 2010, as amended and restated on June 21, 2013, by and among Pride of Hawaii LLC and a syndicate of international banks and a related guarantee by NCL Corporation Ltd. and €126.1 million Norwegian Jewel Credit Agreement, dated November 18, 2010, as amended and restated on June 21, 2013, by and among Norwegian Jewel Limited and a syndicate of international banks and a related guarantee by NCL Corporation Ltd.

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Breakaway Plus Class Ships. Two ships on order with Meyer Werft for delivery in the fourth quarter of 2015 and the first quarter of 2017, respectively, which will be approximately 163,000 Gross Tons and 4,200 Berths each and will be similar in design and innovation to our Breakaway Class Ships.

•

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

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Charter. The hire of a ship for a specified period of time.

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

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

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

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

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

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

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Gross Yield. Total revenue per Capacity Day.

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IMO. International Maritime Organization, a United Nations agency that sets international standards for shipping.

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IPO. The initial public offering of 27,058,824 ordinary shares, par value $.001 per share, of NCLH, which was consummated on January 24, 2013.

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Management NCL Corporation Units. NCLC’s previously outstanding profits interests issued to management (or former management) of NCLC which have been converted into units in NCLC in connection with the Corporate Reorganization.

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

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

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

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Net Yield. Net Revenue per Capacity Day.

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

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

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

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Sponsors. The Apollo Funds, the TPG Viking Funds and Genting HK.

Non-GAAP Financial Measures

We use certain non-GAAP financial measures, such as Net Revenue, Net Yield, Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel and Adjusted EBITDA to enable us to analyze our performance. 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 North America, a portion of our revenue and expenses are denominated in foreign currencies, particularly euro and British Pound sterling, 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, is a factor in the evaluation of the performance of management and is the primary metric used in determining the Company’s performance incentive bonus paid to its employees. We believe that Adjusted EBITDA is a useful measure in determining the Company’s performance as it reflects certain operating drivers of the Company’s 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 measures 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 Income and Adjusted EPS are supplemental financial measures used to demonstrate GAAP net income and EPS excluding certain charges. We use Adjusted Net Income and Adjusted EPS as key performance measures of our earnings performance, and 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. These charges vary from period to period; thus, our presentation of 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 items in our consolidated financial statements below in the “Results of Operations” section.

Financial Presentation

Revenue from our cruise and cruise-related activities are categorized by us as “passenger ticket revenue” and “onboard and other revenue.” Passenger ticket revenue and onboard and other revenue vary according to 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 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 passengers purchase these items from us.

Onboard and other revenue primarily consists of revenue from gaming, beverage sales, specialty dining, shore excursions, retail sales and spa services. 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:

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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 and certain port expenses.

•

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 shore excursions, beverage sales and gaming.

•

Payroll and related consists of the cost of wages and benefits for shipboard employees.

•

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

•

Food consists of food costs for passengers and crew.

•

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

Executive Quarterly Overview

In April 2013, we took delivery of Norwegian Breakaway. To finance the payment due upon delivery, we drew $528.0 million of our €529.8 million Breakaway One Loan which is due April 2025 and an aggregate of $57.7 million of our €126.1 million Norwegian Jewel Term Loan and €126.1 million Norwegian Jade Term Loan both of which are due April 2016. These loans bear interest at LIBOR plus 1.6%.

In July 2013, we confirmed an order with Meyer Werft to proceed with the construction of the second Breakaway Plus Class Ship which is scheduled to be delivered in the first quarter of 2017. Along with the Breakaway Plus Class Ship which is to be delivered in the fourth quarter of 2015, these new ships will be the largest in our fleet at approximately 163,000 Gross Tons and 4,200 Berths each and will be similar in design and innovation to our Breakaway Class Ships. The combined contract cost of these Breakaway Plus Class Ships is approximately €1.4 billion, or $1.8 billion based on the euro/U.S. dollar exchange rate as of June 30, 2013. We have export credit financing in place for these ships that provides financing for 80% of their contract price.

For the second quarter of 2013, we reported Adjusted Net Income of $60.2 million and Adjusted EPS of $0.29, which excludes $69.1 million in expenses related to debt prepayments as well as non-cash share-based compensation and other expenses. On a GAAP basis, net loss attributable to Norwegian Cruise Line Holdings Ltd. and diluted loss per share were $(8.8) million and $(0.04), respectively.

During the quarter, we completed two refinancing transactions which strengthened our balance sheet. In the first transaction, we entered into the new senior secured credit facilities, which refinanced certain credit facilities secured by Norwegian Star, Spirit, Dawn, Pearl and Gem. In conjunction with this transaction, we redeemed the remaining $227.5 million outstanding balance of our $350.0 million 9.50% senior unsecured notes. The second transaction amended and restated the $334.1 million Norwegian Jewel loan, Breakaway/Getaway Term Loan Facilities, €258.0 million Pride of America loan, and €308.1 million Pride of Hawai’i loan, to reduce applicable margins and modify certain terms and conditions. These refinancing transactions resulted in no material change in debt levels. Expenses related to the transactions, including write-off of deferred financing fees and premiums for the redemption of the senior notes, totaled $70.1 million and are included in interest expense.

Three months ended June 30, 2013 (“2013”) compared to the three months ended June 30, 2012 (“2012”)

Total revenue increased 10.5% to $644.4 million in 2013 compared to $583.2 million in 2012. Net Revenue in 2013 increased 12.0% to $482.1 million from $430.5 million in 2012 due to an increase in Capacity Days of 8.2% primarily due to the delivery of Norwegian Breakaway in April 2013 and an increase in Net Yield of 3.5%.

Operating income in 2013 was $95.4 million compared to $87.0 million in 2012 and Adjusted EBITDA (we refer you to our “Results of Operations” below for a calculation of Adjusted EBITDA) improved 12.8% for the same period.

Results of Operations

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenue
Passenger ticket		71.0	%		71.4	%		69.7	%		69.9	%
Onboard and other		29.0	%		28.6	%		30.3	%		30.1	%

Total revenue		100.0	%		100.0	%		100.0	%		100.0	%

Cruise operating expense
Commissions, transportation and other		17.5	%		18.6	%		17.7	%		18.1	%
Onboard and other		7.7	%		7.5	%		7.8	%		7.6	%
Payroll and related		12.8	%		12.8	%		13.4	%		13.4	%
Fuel		11.7	%		12.3	%		12.7	%		12.5	%
Food		5.2	%		5.4	%		5.4	%		5.7	%
Other		10.4	%		9.9	%		9.9	%		10.0	%

Total cruise operating expense		65.3	%		66.5	%		66.9	%		67.3	%

Other operating expense
Marketing, general and administrative		11.5	%		10.6	%		13.6	%		12.1	%
Depreciation and amortization		8.4	%		8.0	%		8.7	%		8.4	%

Total other operating expense		19.9	%		18.6	%		22.3	%		20.5	%

Operating income		14.8	%		14.9	%		10.8	%		12.2	%

Non-operating income (expense)
Interest expense, net		(16.1	)%		(8.4	)%		(19.8	)%		(8.7	)%
Other income (expense)		0.1	%		(0.3	)%		0.2	%		0.1	%

Total non-operating income (expense)		(16.0	)%		(8.7	)%		(19.6	)%		(8.6	)%

Net income (loss) before income taxes		(1.2	)%		6.2	%		(8.8	)%		3.6	%
Income tax expense, net		(0.2	)%		—	%		(0.3	)%		—	%

Net income (loss)		(1.4	)%		6.2	%		(9.1	)%		3.6	%
Net income (loss) attributable to non-controlling interest		—	%		—	%		(0.1	)%		—	%

Net income (loss) attributable to Norwegian Cruise Line Holdings Ltd.		(1.4	)%		6.2	%		(9.0	)%		3.6	%

The following table sets forth selected statistical information:


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Passengers carried		405,646			373,133			773,656			758,010
Passenger Cruise Days		2,763,358			2,556,575			5,291,550			5,138,262
Capacity Days		2,569,525			2,374,885			4,920,824			4,773,259
Occupancy Percentage		107.5	%		107.7	%		107.5	%		107.6	%

Net Revenue, Gross Yield and Net Yield were calculated as follows (in thousands, except Capacity Days and Yield data):


	Three Months Ended June 30,						Six Months Ended June 30,
	2013		2013 Constant Currency		2012		2013		2013 Constant Currency		2012
Passenger ticket revenue	$	457,619	$	458,546	$	416,219	$	816,547	$	817,306	$	767,549
Onboard and other revenue		186,814		186,814		167,015		355,517		355,517		331,115

Total revenue		644,433		645,360		583,234		1,172,064		1,172,823		1,098,664
Less:
Commissions, transportation and other expense		112,985		113,219		108,694		207,564		207,751		199,309
Onboard and other expense		49,316		49,316		44,009		91,687		91,687		83,210

Net Revenue	$	482,132	$	482,825	$	430,531	$	872,813	$	873,385	$	816,145

Capacity Days		2,569,525		2,569,525		2,374,885		4,920,824		4,920,824		4,773,259
Gross Yield	$	250.80	$	251.16	$	245.58	$	238.18	$	238.34	$	230.17
Net Yield	$	187.63	$	187.90	$	181.28	$	177.37	$	177.49	$	170.98

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):


	Three Months Ended June 30,						Six Months Ended June 30,
	2013		2013 Constant Currency		2012		2013		2013 Constant Currency		2012
Total cruise operating expense	$	421,079	$	421,447	$	387,741	$	783,768	$	784,185	$	739,768
Marketing, general and administrative expense		74,111		74,079		61,807		159,317		159,247		132,969

Gross Cruise Cost		495,190		495,526		449,548		943,085		943,432		872,737
Less:
Commissions, transportation and other expense		112,985		113,219		108,694		207,564		207,751		199,309
Onboard and other expense		49,316		49,316		44,009		91,687		91,687		83,210

Net Cruise Cost		332,889		332,991		296,845		643,834		643,994		590,218
Less: Fuel expense		75,582		75,582		71,615		148,080		148,080		137,141

Net Cruise Cost Excluding Fuel		257,307		257,409		225,230		495,754		495,914		453,077
Less: Other (1)		1,923		1,923		—		20,450		20,450		—

Adjusted Net Cruise Cost Excluding Fuel	$	255,384	$	255,486	$	225,230	$	475,304	$	475,464	$	453,077

Capacity Days		2,569,525		2,569,525		2,374,885		4,920,824		4,920,824		4,773,259
Gross Cruise Cost per Capacity Day	$	192.72	$	192.85	$	189.29	$	191.65	$	191.72	$	182.84
Net Cruise Cost per Capacity Day	$	129.55	$	129.59	$	124.99	$	130.84	$	130.87	$	123.65
Net Cruise Cost Excluding Fuel per Capacity Day	$	100.14	$	100.18	$	94.84	$	100.75	$	100.78	$	94.92
Adjusted Net Cruise Cost Excluding Fuel per Capacity Day	$	99.39	$	99.43	$	94.84	$	96.59	$	96.62	$	94.92

(1)	Consists of non-cash share-based compensation related to the IPO and other supplemental adjustments.

Adjusted Net Income and Adjusted EPS was calculated as follows (in thousands, except share and per share data):


	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Net income (loss) attributable to Norwegian Cruise Line Holdings Ltd.	$	(8,841	)	$	36,031	$	(105,236	)	$	39,315
Net loss attributable to non-controlling interest		(74	)		—		(1,179	)		—

Net income (loss)		(8,915	)		36,031		(106,415	)		39,315
Non-cash share-based compensation related to IPO		—			—		18,527			—
Non-cash compensation		509			—		509			—
Taxes related to changes in corporate structure and debt prepayments, net		(1,446	)		—		(70	)		—
Expenses related to debt prepayments (1)		70,068			—		160,573			—

Adjusted Net Income	$	60,216		$	36,031	$	73,124		$	39,315

Diluted weighted–average shares outstanding – Net income (loss)		203,997,492	(2)		178,949,924		201,189,562	(3)		178,961,249

Diluted weighted–average shares outstanding – Adjusted Net Income		210,726,281			178,949,924		207,514,700			178,961,249

Diluted earnings (loss) per share	$	(0.04	)	$	0.20	$	(0.52	)	$	0.22

Adjusted EPS	$	0.29		$	0.20	$	0.35		$	0.22

(1)	Consists of premiums, write-offs of deferred fees and other expenses related to prepayments of debt.

(2)	Due to a net loss, excludes 6,728,789 shares, as including these would be antidilutive.

(3)	Due to a net loss, excludes 6,325,138 shares, as including these would be antidilutive.

Adjusted EBITDA was calculated as follows (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Net income (loss) attributable to Norwegian Cruise Line Holdings Ltd.	$	(8,841	)	$	36,031	$	(105,236	)	$	39,315
Interest expense, net		103,686			48,905		231,342			95,075
Income tax expense, net		1,047			71		3,244			146
Depreciation and amortization expense		53,854			46,680		102,602			92,477

EBITDA		149,746			131,687		231,952			227,013
Non-controlling interest		(74	)		—		(1,179	)		—
Other (income) expense		(429	)		1,999		(1,794	)		(1,086	)
Non-cash compensation and other		3,092			1,372		4,589			2,672
Non-cash share-based compensation related to IPO		—			—		18,527			—

Adjusted EBITDA	$	152,335		$	135,058	$	252,095		$	228,599

Three months ended June 30, 2013 (“2013”) compared to three months ended June 30, 2012 (“2012”)

Revenue

Total revenue increased 10.5% to $644.4 million in 2013 compared to $583.2 million in 2012. Net Revenue increased 12.0% in 2013, due to an increase in Capacity Days of 8.2% primarily due to the delivery of Norwegian Breakaway in April 2013, partially offset by planned Dry-docks for Pride of America and Norwegian Pearl, and an increase in Net Yield of 3.5%. The increase in Net Yield was due to an increase in net passenger ticket revenue and onboard and other revenue, which was primarily due to an increase in casino revenue. On a Constant Currency basis, Net Yield increased 3.7% in 2013 compared to 2012.

Expense

Total cruise operating expense increased 8.6% in 2013 compared to 2012 primarily due to the increase in Capacity Days discussed above and expenses related to planned Dry-docks and inaugural expenses related to the launch of Norwegian Breakaway. Total other operating expense increased 18.0% in 2013 compared to 2012 primarily due to the timing of certain expenses and depreciation expense related to the addition of Norwegian Breakaway. On a Capacity Day basis, Net Cruise Cost increased 3.6% and 3.7% on an as reported and Constant Currency basis, respectively, due to the increase in Capacity Days and expenses discussed above. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 4.8% on an as reported and Constant Currency basis mainly due to the timing of certain expenses.

Interest expense, net increased to $103.7 million in 2013 from $48.9 million in 2012 primarily due to $70.1 million of expenses associated with debt prepayments partially offset by lower interest rates.

Six months ended June 30, 2013 (“2013”) compared to six months ended June 30, 2012 (“2012”)

Revenue

Total revenue increased 6.7% to $1.2 billion in 2013 compared to $1.1 billion in 2012. Net Revenue increased 6.9% in 2013, due to an increase in Net Yield of 3.7% and an increase in Capacity Days of 3.1% related to the delivery of Norwegian Breakaway in April 2013. The increase in Net Yield was due to an increase in net passenger ticket revenue and onboard and other revenue primarily due to an increase in beverage sales. On a Constant Currency basis, Net Yield increased 3.8% in 2013 compared to 2012.

Expense

Total cruise operating expense increased 5.9% in 2013 compared to 2012 primarily due to an increase in expenses related to planned Dry-docks, inaugural expenses related to the launch of Norwegian Breakaway and fuel expense, partially offset by the timing of certain expenses. The increase in fuel expense was primarily the result of a 6.3% increase in the average fuel price to $680 per metric ton in 2013 from $640 per metric ton in 2012. Total other operating expense increased 16.2% in 2013 compared to 2012 primarily due to non-cash expenses related to share-based compensation recognized upon the realization of the IPO, the timing of certain expenses and the depreciation expense related to the addition of Norwegian Breakaway. On a Capacity Day basis, Net Cruise Cost increased 5.8% on both an as reported and Constant Currency basis due to the expenses discussed above. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 1.8% on an as reported and Constant Currency basis mainly due to the timing of certain expenses.

Interest expense, net increased to $231.3 million in 2013 from $95.1 million in 2012 primarily due to $160.6 million of expenses associated with debt prepayments partially offset by lower interest rates.

Income tax expense, net for the six months ended June 30, 2013 was $3.2 million which consists of a one-time expense of $4.2 million due to a change in U.S. tax status from a partnership to a corporation in connection with our recent IPO, a benefit of $5.0 million in connection with our prepayments of debt, and a $4.0 million expense from our U.S. operations.

Liquidity and Capital Resources

General

As of June 30, 2013, our liquidity was $499.8 million consisting of $82.8 million in cash and cash equivalents and $417.0 million available under our revolving credit facility. Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service.

As of June 30, 2013, we had a working capital deficit of $970.1 million. This deficit included $542.6 million of advance ticket sales, which represents the passenger revenues 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.

Sources and Uses of Cash

In this section, references to “2013” refer to the six months ended June 30, 2013 and references to “2012” refer to the six months ended June 30, 2012.

Net cash provided by operating activities was $252.8 million in 2013 as compared to $255.8 million in 2012. The change in net cash provided by operating activities reflects the loss in 2013 of $106.4 million which includes fees of $124.2 million related to prepayment of debt compared to income of $39.3 million in 2012, as well as timing differences in cash receipts and payments relating to operating assets and liabilities. The 2012 balance included $6.0 million related to the premium received from the issuance of $100.0 million of senior unsecured notes.

Net cash used in investing activities was $759.0 million in 2013 and $175.0 million in 2012, 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 used in investing activities was $175.0 million in 2012, primarily related to the payments for construction of Norwegian Breakaway and Norwegian Getaway, the purchase of Norwegian Sky, and other ship improvements and shoreside projects.

Net cash provided by financing activities was $543.6 million in 2013, primarily due to the issuance of our $300.0 million 5% senior notes due 2018 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 due 2016 and revolving credit facilities and a payment related to Norwegian Sky purchase agreement. Net cash used in financing activities was $74.0 million in 2012, primarily due to repayments of our revolving credit facilities and other borrowings which were partially offset by the issuance of $100.0 million of senior unsecured notes.

Future Capital Commitments

Future capital commitments consist of contracted commitments, including future expected capital expenditures for business enhancements and ship construction contracts. As of June 30, 2013, anticipated capital expenditures for business enhancements were $40.5 million for the remainder of 2013, and $83.0 million for each of the years 2014 and 2015. As of June 30, 2013, anticipated capital expenditures for ship construction were $42.8 million for the remainder of 2013, $747.9 million for 2014 and $799.3 million for 2015, of which export credit financing is in place of $667.6 million for 2014 and $630.3 million for 2015, based on the euro/U.S. dollar exchange rate as of June 30, 2013.

We have also ordered two additional cruise ships from Meyer Werft for delivery in the fourth quarter of 2015 and first quarter of 2017. The new Breakaway Plus Class Ships will be the largest in our fleet at approximately 163,000 Gross Tons and 4,200 Berths each and will be similar in design and innovation to our Breakaway Class Ships. The combined contract cost of the two Breakaway Plus Class Ships is approximately €1.4 billion, or $1.8 billion based on the euro/U.S. dollar exchange rate as of June 30, 2013. We have export credit financing in place for these ships that provides financing for 80% of their contract price.

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 three months ended June 30, 2013 and 2012 was $5.6 million and $5.3 million, respectively, and for the six months ended June 30, 2013 and 2012 was $13.1 million and $10.0 million, respectively, associated with the construction of Norwegian Breakaway and Norwegian Getaway.

Off-Balance Sheet Transactions

None.

Contractual Obligations

As of June 30, 2013, 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)	$	3,191,210	$	272,644	$	622,935	$	1,476,611	$	819,020
Due to Affiliate (2)		110,340		37,064		73,276		—		—
Operating leases (3)		34,583		6,299		10,770		9,684		7,830
Ship construction contracts (4)		1,544,626		708,733		835,893		—		—
Port facilities (5)		188,426		26,263		52,304		48,939		60,920
Interest (6)		397,069		76,556		137,730		112,808		69,975
Other (7)		55,717		33,667		19,034		2,367		649

Total	$	5,521,971	$	1,161,226	$	1,751,942	$	1,650,409	$	958,394

(1)	Net of unamortized original issue discount of $1.5 million. Also includes capital leases.

(2)	Primarily related to the purchase of Norwegian Sky.

(3)	Primarily for offices, motor vehicles and office equipment.

(4)	For Norwegian Getaway and our first Breakaway Plus Class Ship based on the euro/U.S. dollar exchange rate as of June 30, 2013. Export credit financing is in place from a syndicate of banks.

(5)	Primarily for our usage of certain port facilities.

(6)	Includes fixed and variable rates with LIBOR held constant as of June 30, 2013.

(7)	Future commitments for service and maintenance contracts.

Other

Certain of our service providers have required collateral in the normal course of our business including liens on certain of our ships. 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 June 30, 2013.

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 facilities 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. As a result of the equity infusion from the IPO and the related use of proceeds, our leverage was improved and our balance sheet was strengthened. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

General

Interest Rate Risk

From time to time, we consider entering into interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense. As of June 30, 2013, 15% of our debt was fixed and 85% was variable. Based on our June 30, 2013 outstanding variable rate debt balance, a one percentage point increase in annual LIBOR interest rates would increase our annual interest expense by approximately $27.1 million excluding the effects of capitalization of interest.

Foreign Currency Exchange Rate Risk

As of June 30, 2013, we had foreign currency options, including call options with deferred premiums and a collar, and foreign currency forward contracts to hedge the exposure to volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. These derivatives hedge the foreign currency exchange rate risk on a portion of the final payments on our ship construction contracts. For the call option contracts, if the spot rate at the date the ships are delivered is less than the strike price we would pay the deferred premiums and not exercise the options. For the collar, if the spot rate at the date the ships are delivered is more than the put option strike price and less than the call option strike price, neither the put or call option will be exercised. As of June 30, 2013, the remaining payments not hedged aggregate €912.3 million, or $1,186.9 million based on the euro/U.S. dollar exchange rate as of June 30, 2013. We estimate that a 10% change in the euro as of June 30, 2013 would result in a $118.7 million change in the U.S. dollar value of the foreign currency denominated remaining payments.

Fuel Price Risk

Our exposure to market risk for changes in fuel prices relates to the forecasted purchases of fuel on our ships. Fuel expense, as a percentage of our total cruise operating expense, was 17.9% and 18.5% for the three months ended June 30, 2013 and 2012 and 18.9% and 18.5% for the six months ended June 30, 2013 and 2012, respectively. From time to time, we use fuel derivative agreements to mitigate the financial impact of fluctuations in fuel prices. As of June 30, 2013, we had hedged approximately 93%, 63% and 51% of our 2013, 2014 and 2015 projected metric tons of fuel purchases, respectively. We estimate that a 10% increase in our weighted-average fuel price would increase our anticipated 2013 fuel expense by $14.4 million. This increase would be partially offset by an increase in the fair value of our fuel swap agreements and fuel collars and options of $12.1 million. Fair value of our derivative contracts is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms such as maturity, as well as other inputs such as fuel types, fuel curves, creditworthiness of the counterparty and the Company, as well as other data points.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of June 30, 2013. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

We refer you to our Annual Report on Form 10-K for a discussion of the risk factors that affect our business and financial results. There has been no material change to these risk factors.

Item 6. Exhibits



10.1		Amended and Restated Employment Agreement by and between NCL (Bahamas) Ltd. and Kevin M. Sheehan, entered into on June 6, 2013 and effective on April 1, 2013*+

10.2		Form of Director Restricted Share Award Agreement *+

10.3		Credit Agreement dated as of May 24, 2013, by and among NCL Corporation Ltd., Deutsche Bank Trust Company Americas, as administrative agent and as collateral agent, DNB Bank ASA and Nordea Bank Finland Plc, New York Branch, as co-syndication agents, and a syndicate of other banks party thereto as joint bookrunners, arrangers, co-documentation agents and lenders (incorporated herein by reference to Exhibit 10.1 on Norwegian Cruise Line Holdings Ltd.’s report on Form 8-K/A filed on July 11, 2013 (File No. 001-35784))++

10.4		Third Supplemental Deed, dated June 21, 2013 to €126.1 million Pride of Hawai’i Credit Agreement dated as of November 18, 2010 (as amended), by and among Pride of Hawaii, LLC, NCL Corporation Ltd., as guarantor, KFW IPEX-Bank GmbH, as facility agent, collateral agent and Hermes agent, and a syndicate of financial institutions party thereto as lenders. (incorporated herein by reference to Exhibit 10.1 on Norwegian Cruise Line Holdings Ltd.’s report on Form 8-K/A filed on July 11, 2013 (File No. 001-35784))++

10.5		Third Supplemental Deed, dated June 21, 2013 to €126.1 million Norwegian Jewel Credit Agreement dated as of November 18, 2010 (as amended), by and among Norwegian Jewel Limited, NCL Corporation Ltd., as guarantor, KFW IPEX-Bank GmbH, as facility agent and collateral agent, Commerzbank Aktiengesellschaft, as the Hermes Agent, and a syndicate of financial institutions party thereto as lenders (incorporated herein by reference to Exhibit 10.2 on Norwegian Cruise Line Holdings Ltd.’s report on Form 8-K/A filed on July 11, 2013 (File No. 001-35784))++



10.6		Thirteenth Supplemental Deed, dated June 21, 2013, to €258.0 million Pride of America Loan dated as of April 4, 2003 (as amended), by and among Pride of America Ship Holding, LLC, NCL Corporation Ltd., as guarantor, NCL America Holdings, LLC, as shareholder, NCL America LLC, as manager, NCL (Bahamas) Ltd., as Sub-Agent, HSBC Bank PLC, as agent and trustee, KFW IPEX-Bank GmbH, as Hermes agent, and a syndicate of financial institutions party thereto as lenders (incorporated herein by reference to Exhibit 10.3 on Norwegian Cruise Line Holdings Ltd.’s report on Form 8-K/A filed on July 11, 2013 (File No. 001-35784))++

10.7		Eleventh Supplemental Deed, dated June 21, 2013, to €308.0 million Pride of Hawai’i Loan dated as of April 20, 2004 (as amended), by and among Pride of Hawaii, LLC, NCL Corporation Ltd., as guarantor, NCL America Holdings, LLC, as shareholder, NCL (Bahamas) Ltd., as bareboat charterer, HSBC Bank PLC, as agent and trustee, KFW IPEX-Bank GmbH, as Hermes agent, and a syndicate of financial institutions party thereto as lenders (incorporated herein by reference to Exhibit 10.4 on Norwegian Cruise Line Holdings Ltd.’s report on Form 8-K/A filed on July 11, 2013 (File No. 001-35784))++

10.8		Ninth Supplemental Deed, dated June 21, 2013 to $334.1 million Norwegian Jewel Loan dated as of April 20, 2004 (as amended), by and among Norwegian Jewel Limited, NCL Corporation Ltd., as guarantor, NCL International, Ltd., as shareholder, NCL (Bahamas) Ltd., as manager, HSBC Bank PLC, as agent and trustee, Commerzbank Aktiengesellschaft, as Hermes agent, and a syndicate of financial institutions party thereto as lenders (incorporated herein by reference to Exhibit 10.5 on Norwegian Cruise Line Holdings Ltd.’s report on Form 8-K/A filed on July 11, 2013 (File No. 001-35784))++

31.1		Certification of the President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

31.2		Certification of the Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

32.1		Certifications of the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code**

*	Filed herewith

**	Furnished herewith

+	Management contract or compensatory plan

++	Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

Interactive Data File

101	The following unaudited financial statements are from Norwegian Cruise Line Holdings Ltd.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, as filed with the SEC on July 30, 2013, formatted in XBRL, as follows:

(i)

the Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012;

(ii)

the Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2013 and 2012;

(iii)

the Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012;

(iv)

the Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012;

(v)

the Consolidated Statements of Changes in Shareholder’s Equity; and

(vi)

the Notes to the Consolidated Financial Statements, tagged in summary and detail.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


NORWEGIAN CRUISE LINE HOLDINGS LTD. (Registrant)

By:		/s/ KEVIN M. SHEEHAN
Name:		Kevin M. Sheehan
Title:		President and Chief Executive Officer

By:		/s/ WENDY A. BECK
Name:		Wendy A. Beck
Title:		Executive Vice President and Chief Financial Officer

Date: July 30, 2013

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