S-1 1 ds1.htm FORM S-1 Form S-1
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As filed with the Securities and Exchange Commission on July 15, 2011

Registration Statement No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

NORWEGIAN CRUISE LINE HOLDINGS LTD.

(Exact name of registrant as specified in its charter)

 

 

 

Bermuda   4400  

98-0691007

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

7665 Corporate Center Drive

Miami, Florida 33126

(305) 436-4000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Daniel S. Farkas

Senior Vice President and General Counsel

Norwegian Cruise Line Holdings Ltd.

7665 Corporate Center Drive

Miami, Florida 33126

Telephone: (305) 436-4000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Gregory A. Ezring, Esq.

Tracey A. Zaccone, Esq.

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, New York 10019

Telephone: (212) 373-3000

Facsimile: (212) 757-3990

 

William B. Kuesel, Esq.

O’Melveny & Myers LLP

7 Times Square

New York, New York 10036

Telephone: (212) 326-2000

Facsimile: (212) 326-2061

 

Jonathan A. Schaffzin

Luis R. Penalver

Cahill Gordon & Reindel LLP

80 Pine Street

New York, New York 10005

Telephone: (212) 701-3000

Facsimile: (212) 269-5420

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

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.

 

Large accelerated filer    ¨

   Accelerated filer    ¨

Non-accelerated filer (Do not check if a smaller reporting company)    x

   Smaller reporting company    ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

Title of Each Class of Securities

to be Registered

 

Proposed Maximum
Aggregate

Offering Price(1)(2)

 

Amount of
Registration

Fee

Ordinary shares, par value $.001 per share

  $250,000,000   $29,025
 
 
(1) Estimated solely for the purposes of calculating the amount of the registration fee pursuant to Rule 457(o).
(2) Including ordinary shares which may be purchased by the underwriters.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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EXPLANATORY NOTE

This Registration Statement on Form S-1 is being filed by Norwegian Cruise Line Holdings Ltd. (the “Issuer”). Following completion of a corporate reorganization to be commenced in connection with consummation of the offering of ordinary shares covered by this Registration Statement, the Issuer will become the direct parent company of NCL Corporation Ltd.

NCL Corporation Ltd. has previously filed a Registration Statement on Form S-1 (File No. 333-170141) that relates to a comparable offering to the offering contemplated by this Registration Statement. In connection with the filing of this Registration Statement, NCL Corporation Ltd. is withdrawing its Registration Statement.


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JULY 15, 2011

PRELIMINARY PROSPECTUS

Ordinary Shares

LOGO

NORWEGIAN CRUISE LINE HOLDINGS LTD.

 

 

This is the initial public offering of our ordinary shares, par value $.001 per share, which we refer to as our ordinary shares. We are a newly formed holding company which, upon the consummation of this offering, will own 100% of the ordinary shares of NCL Corporation Ltd. and will be the issuer of the ordinary shares being offered hereby. We are selling an aggregate of                      ordinary shares in this offering.

Prior to the offering, there has been no public market for our ordinary shares. We expect the initial public offering price to be between $             and $             per ordinary share. We expect to apply for listing of our ordinary shares on the NASDAQ Global Select Market under the symbol “NCLH”.

We have granted the underwriters an option for a period of 30 days to purchase from us an aggregate of up to              additional ordinary shares.

Investing in our ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 18 to read about certain factors you should consider before buying our ordinary shares.

 

     Per Share    Total

Initial public offering price

     

Underwriting discounts and commissions

     

Proceeds to new holding company before expenses

     

The underwriters expect to deliver the ordinary shares on or about              , 2011.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Ordinary shares may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act of 1998, which regulates the sale of securities in Bermuda. Further, the Bermuda Monetary Authority (the “BMA”) must approve all issues and transfers of shares of a Bermuda exempted company under the Exchange Control Act of 1972 and regulations thereunder (together, the “ECA”). The BMA has given a general permission which will permit the issue of the ordinary shares and the free transferability of such shares under the ECA so long as voting securities of the Company are admitted to trading on the NASDAQ Global Select Market or any other appointed stock exchange. In addition, we will deliver to and file a copy of this prospectus with the Registrar of Companies in Bermuda in accordance with Bermuda law. The BMA and the Registrar of Companies do not accept any responsibility for the financial soundness of any proposal or for the correctness of any of the statements made or opinions expressed herein.

 

UBS Investment Bank   Barclays Capital

Goldman, Sachs & Co.

 

 

The date of this prospectus is                      , 2011.


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TABLE OF CONTENTS

 

     Page  

TERMS USED IN THIS PROSPECTUS

     ii   

MARKET AND INDUSTRY DATA AND FORECASTS

     v   

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     18   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     32   

USE OF PROCEEDS

     34   

DIVIDEND POLICY

     35   

CAPITALIZATION

     36   

DILUTION

     37   

SELECTED CONSOLIDATED FINANCIAL DATA

     39   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     41   

BUSINESS

     52   

MANAGEMENT

     77   

COMPENSATION DISCUSSION AND ANALYSIS

     84   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     104   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     108   

DESCRIPTION OF CERTAIN INDEBTEDNESS

     114   

DESCRIPTION OF SHARE CAPITAL

     123   

SHARES ELIGIBLE FOR FUTURE SALE

     135   

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     136   

MATERIAL BERMUDA TAX CONSIDERATIONS

     139   

UNDERWRITING

     140   

LEGAL MATTERS

     147   

EXPERTS

     147   

ADDITIONAL INFORMATION

     147   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

You should rely only on the information contained in this prospectus. We and the underwriters have not authorized anyone to provide you with information that is different from or additional to, that contained in this prospectus. This prospectus may only be used where it is legal to sell our ordinary shares. The information in this prospectus may only be accurate on the date of this prospectus.

 

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TERMS USED IN THIS PROSPECTUS

Unless otherwise indicated by the context, references in this prospectus to (i) the “Company,” “we,” “our,” “us” and “NCL” refer, prior to the consummation of this offering, to NCL Corporation Ltd. and its subsidiaries and, upon and after the consummation of this offering, to the Issuer (as defined below) and its subsidiaries, (ii) “Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and “NCL America” or “NCLA” refers to our U.S.-flagged operations, (iii) “Apollo” refers to Apollo Global Management, LLC and the “Apollo Funds” refers to one or more of NCL Investment Limited, NCL Investment II Ltd., AIF VI NCL (AIV), L.P., AIF VI Euro Holdings, L.P., AAA-Guarantor Co-Invest VI, 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., (iv) “TPG Capital” refers to TPG Capital, L.P. and the “TPG Viking Funds” refers to one or more of TPG Viking I, L.P., TPG Viking II, L.P., 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 Capital, (v) “Genting HK” refers to Genting Hong Kong Limited and/or its affiliates (formerly Star Cruises Limited and/or its affiliates), and (vi) “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.

Unless otherwise indicated in this prospectus, the following terms have the meanings set forth below (all principal amounts refer to the original principal amount incurred or issued, as applicable):

 

   

$334.1 million Norwegian Jewel loan. $334.1 million secured loan agreement, dated as of April 20, 2004, as amended and restated on April 2, 2009 and as further amended, by and among Norwegian Jewel Limited, as borrower, and a syndicate of international banks, and related guarantee by NCL Corporation Ltd.

 

   

$750.0 million senior secured revolving credit facility. $750.0 million credit agreement, dated October 28, 2009, 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.

 

   

$450.0 million senior secured notes. $450.0 million aggregate amount of 11.75% senior secured notes due 2016 issued by NCL Corporation Ltd. on November 12, 2009, and guaranteed by Norwegian Dawn Limited, Norwegian Sun Limited, Norwegian Spirit, Ltd. and Norwegian Star Limited.

 

   

$250.0 million senior notes. $250.0 million aggregate amount of 9.50% senior notes due 2018 issued by NCL Corporation Ltd. on November 9, 2010.

 

   

Adjusted EBITDA. EBITDA subject to certain adjustments as set forth in note 6 to the “Prospectus Summary—Summary Consolidated Financial Data” included elsewhere in this prospectus.

 

   

Adjusted EBITDA Margin. Adjusted EBITDA as a percentage of total revenue.

 

   

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

 

   

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

 

   

Charter. The hire of a ship for a specified period of time. The contract for a charter is called a charter party. A ship is “chartered-in” by an end user and “chartered-out” by the provider of the ship.

 

   

CLIA. Cruise Lines International Association, a non-profit marketing and training organization formed in 1975 to promote cruising.

 

   

Dry-dock. A process whereby a ship is positioned in a large basin where all 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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€40.0 million Pride of America commercial loan. €40.0 million secured loan agreement, dated as of April 4, 2003, as amended and restated on April 2, 2009 and as further amended, by and among Pride of America Ship Holding, LLC, as borrower, and a syndicate of international banks, and related guarantee by NCL Corporation Ltd.

 

   

€258.0 million Pride of America loan. €258.0 million secured loan agreement, dated as of April 4, 2003, as amended and restated on April 2, 2009 and as further amended, 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. €308.1 million Pride of Hawai’i Loan, dated as of April 20, 2004, as amended and restated on April 2, 2009 and as further amended, by and among Pride of Hawaii, LLC, as borrower, and a syndicate of international banks, and related guarantee by NCL Corporation Ltd.

 

   

€624.0 million Norwegian Pearl and Norwegian Gem revolving credit facility. €624.0 million revolving loan facility agreement, dated October 7, 2005, as amended and restated on April 2, 2009 and as further amended, by and among NCL Corporation Ltd., as borrower, and a syndicate of international banks, and related guarantees by Norwegian Pearl, Ltd. and Norwegian Gem, Ltd.

 

   

€662.9 million Norwegian Epic loan. €662.9 million syndicated loan facility, dated September 22, 2006, as amended and restated on April 2, 2009 and as further amended, by and among Norwegian Epic, Ltd. (f/k/a F3 Two, Ltd.), as borrower, and a syndicate of international banks, and related guarantee by NCL Corporation Ltd.

 

   

Existing senior secured credit facilities. Our Newbuild credit facilities, our $750.0 million senior secured revolving credit facility, €624.0 million Norwegian Pearl and Norwegian Gem revolving credit facility, €308.1 million Pride of Hawai’i loan, $334.1 million Norwegian Jewel loan, €258.0 million Pride of America loan, €40.0 million Pride of America commercial loan, and our €662.9 million Norwegian Epic loan.

 

   

GAAP. Generally Accepted Accounting Principles in the U.S.

 

   

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

 

   

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

 

   

Gross Yield. Total revenue per Capacity Day.

 

   

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

 

   

Issuer. Norwegian Cruise Line Holdings Ltd., a newly formed holding company which, upon the consummation of this offering, will own 100% of the ordinary shares of NCL Corporation Ltd. and will be the issuer of the ordinary shares being offered hereby. For additional detail regarding the Issuer, we refer you to “Prospectus Summary—Corporate Reorganization.”

 

   

Major North American Cruise Brands. Norwegian Cruise Line, Carnival Cruise Lines, Royal Caribbean International, Holland America, Princess Cruises and Celebrity Cruises.

 

   

MARPOL. The International Convention for the Prevention of Pollution from Ships, an international environmental regulation.

 

   

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

 

   

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.

 

   

Newbuild credit facilities. Our export credit facilities and term loan facilities entered into in connection with our agreement to purchase the two new ships we have agreed to build with Meyer Werft GmbH (the “New Ships”) as described in “Description of Certain Indebtedness—Newbuild Export Credit Facilities” and “Description of Certain Indebtedness—Newbuild Term Loan Facilities.”

 

   

Norwegian Shipboard Retirement Plan or 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.

 

   

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

 

   

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

 

   

Reimbursement and Distribution Agreement or RDA. The Reimbursement and Distribution Agreement, dated August 17, 2007, by and among NCL Investment Limited, Genting HK and NCL Corporation Ltd., as amended, supplemented or modified from time to time.

 

   

SEC. U.S. Securities and Exchange Commission.

 

   

Single-day cruises. Cruises which do not enter a foreign port and vary in length from one night to several nights.

 

   

SOLAS. The International Convention for the Safety of Life at Sea, an international safety regulation.

 

   

Terminal. A building in a port through which ship passengers arrive and depart.

 

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MARKET AND INDUSTRY DATA AND FORECASTS

This prospectus includes market share and industry data and forecasts that we obtained from industry publications, third-party surveys and internal company surveys. Industry publications, including those from CLIA, and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. All CLIA information, obtained from the CLIA website “cruising.org”, relates to CLIA member lines, which represent 26 of the major North American cruise lines including NCL Corporation Ltd., which together represented 97% of the North American cruise capacity as of March 31, 2011. All other references to third party information are publicly available at nominal or no cost. We use the most currently available industry and market data to support statements as to our market position. Although we believe that the industry publications and third-party sources are reliable, we have not independently verified any of the data from industry publications or third-party sources. Similarly, while we believe our internal estimates with respect to our industry are reliable, our estimates have not been verified by any independent sources. While we are not aware of any misstatements regarding any industry data presented herein, our estimates, in particular as they relate to market share and our general expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors,” “Cautionary Statement Concerning Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

 

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PROSPECTUS SUMMARY

The following summary includes highlights of the more detailed information and consolidated financial statements included elsewhere in this prospectus. This summary sets forth the material terms of the offering but does not contain all of the information that you should consider before investing in our ordinary shares. For a more complete understanding of us, our business and the offering, we urge you to read this prospectus carefully, including the sections entitled “Risk Factors,” “Cautionary Statement Concerning Forward-Looking Statements” and “Additional Information” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment.

Our Company

We are a leading global cruise line operator, offering cruise experiences for travelers with a wide variety of itineraries in North America (including Alaska and Hawaii), the Mediterranean, the Baltic, Central America, Bermuda and the Caribbean. We strive to offer an innovative and differentiated cruise vacation with the goal of providing our customers the highest levels of overall satisfaction on their cruise experience. In turn, we aim to generate the highest customer loyalty and greatest numbers of repeat customers. We created a distinctive style of cruising called “Freestyle Cruising” onboard all of our ships, which we believe provides our passengers with the freedom and flexibility associated with a resort style atmosphere and experience as well as more dining options than a traditional cruise. We established the very first private island developed by a cruise line in the Bahamas with a diverse offering of activities for passengers. We are also the only cruise line operator to offer an entirely inter-island itinerary in Hawaii. By providing such a distinctive experience and appealing combination of value and service, we straddle both the contemporary and premium segments. As a result, we have been recognized for our achievements as the recipient of multiple honorary awards mainly consisting of reviews tabulated from the readers of travel periodicals such as Travel Weekly, Condé Nast Traveler, and Travel & Leisure. Our newest ship, Norwegian Epic, was awarded “Gold” in the Contemporary Ship Category as “Best Cruise Ship Overall” by Travel Weekly for the 2010 Magellan Award.

We offer a wide variety of cruises ranging from one day to three weeks. During 2010, we docked at over 125 ports worldwide, with itineraries originating from 17 ports of which 10 are in North America. In line with our strategy of innovation, many of these North American ports are part of our “Homeland Cruising” program in which we have homeports which are close to major population centers, such as New York, Boston and South Florida. This reduces the need for vacationers to fly to distant ports to embark on a cruise and helps reduce our customers’ overall vacation cost. We offer a wide selection of exotic itineraries outside of the traditional cruising markets of the Caribbean and Mexico; these include cruises in Europe, including the Mediterranean and the Baltic, Bermuda, Alaska and the industry’s only entirely inter-island itinerary in Hawaii, with our U.S.-flagged ship, Pride of America. This itinerary is unparalleled in the cruise industry, as all other competing cruise lines are registered outside the U.S. and are required to dock at a distant foreign port when providing their customers with a Hawaiian-based cruise itinerary.

Our new management team has driven the Company to achieve substantial improvements in operating results and growth in revenue and cash flow generation in a challenging market environment. Since joining the Company in late 2007, our President and Chief Executive Officer, Kevin M. Sheehan, has led a successful turnaround of the Company, including overseeing major initiatives such as improving onboard service and amenities across the fleet, expanding the line’s European presence and repositioning two of the line’s Hawaii-based ships, which had a significant impact on the profitability of the business. In addition, we recently appointed Wendy A. Beck as our new Executive Vice President and Chief Financial Officer and augmented our senior management team with five new Senior Vice Presidents in the areas of Sales, Marketing, Hotel Operations and Finance.

 

 

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Our fleet of eleven modern ships has been purpose-built to deliver “Freestyle Cruising,” which we believe provides us with a competitive advantage given our consistent “Freestyle Cruising” product offering. By focusing on “Freestyle Cruising,” we have been able to achieve higher onboard spend levels, greater customer loyalty and the ability to attract a more diverse clientele. At the end of June 2010, we took delivery of our largest cruise ship, Norwegian Epic (4,100 Berths), which represents the next evolution of “Freestyle Cruising,” offering 21 dining options and what we believe to be the widest array of entertainment options at sea. As of March 31, 2011, we have the youngest fleet of cruise ships in the industry among the Major North American Cruise Brands, with a weighted-average age of 6.4 years.

As a result of our positive operating performance over the last three years, the successful launch of Norwegian Epic, the growing demand we see for our distinctive cruise offering, and the rational supply outlook for the industry, we believe that it is an optimal time for the Company to add two new ships to our fleet, in order to continue to grow the Norwegian brand and drive shareholder value. In September 2010, we reached an agreement with Meyer Werft GmbH of Germany to build two new cruise ships for delivery in the second quarter of 2013 and 2014, respectively. Building on the success of Norwegian Epic, we have designed these two new next-generation “Freestyle Cruising” ships to include some of the most popular elements of our recently delivered ships together with new and differentiated features. We have entered into financing arrangements for approximately 90% of the contract price of the two ships. Each ship will approximate 143,500 Gross Tons and 4,000 Berths with an aggregate contract price of the two ships of approximately €1.2 billion, or $1.7 billion based on the euro/U.S. dollar exchange rate as of March 31, 2011. This is approximately €155,000 per Berth, or $219,000 per Berth based on the euro/U.S. dollar exchange rate as of March 31, 2011.

For the twelve months ended March 31, 2011, we generated total revenue of $2,091.1 million, Net Revenue of $1,542.5 million, net income of $28.1 million and Adjusted EBITDA of $427.1 million representing an Adjusted EBITDA margin of 20.4%. For the three months ended March 31, 2011, we generated total revenue of $495.5 million, Net Revenue of $368.0 million, net loss of $10.6 million, Adjusted EBITDA of $81.9 million and an Adjusted EBITDA margin of 16.5%. For the three months ended March 31, 2010, we generated total revenue of $416.5 million, Net Revenue of $304.9 million, net loss of $16.1 million, Adjusted EBITDA of $59.5 million and an Adjusted EBITDA margin of 14.3%. This represents an increase of 220 basis points in period over period Adjusted EBITDA margin as a result of improved ticket pricing and onboard spending coupled with various business improvement, product enhancement and cost reduction initiatives. We refer you to note 6 to our “Summary Consolidated Financial Data” included elsewhere in this prospectus for a reconciliation of Adjusted EBITDA to net income (loss).

Our Industry

We believe that the cruise industry demonstrates the following positive fundamentals:

Strong Growth with Low Penetration and Significant Upside

Cruising is a vacation alternative with broad appeal, as it offers a wide range of products and services to suit the preferences of vacationing customers of all ages, backgrounds and interests. Since 1980, cruising has been one of the fastest growing segments of the North American vacation market. According to CLIA, in 2010 approximately 15 million passengers took cruises of two consecutive nights or more on CLIA member lines versus 7.2 million passengers in 2000, representing a compound annual growth rate of approximately 8%. Based on CLIA’s research, we believe that cruising is under-penetrated and represents approximately 10% of the North American vacation market. As measured in Berths or room count, the cruise industry is relatively nascent as compared to the wide variety of much more established vacation travel destinations across North America.

According to the Orlando/Orange County Convention & Visitors Bureau and the Las Vegas Convention and Visitors Authority, there are approximately 274,000 rooms in just Orlando and Las Vegas combined. By comparison, the estimated Major North American Cruise Brands’ capacity in terms of Berths is approximately 224,000. In addition, according to industry research, only 20% of the U.S. population has ever taken a cruise and

 

 

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we believe this percentage should increase. The European vacation market, the fastest growing market globally, remains under-penetrated by the cruise industry, with approximately 1% of Europeans having taken a cruise in 2008, compared with 3.1% of the population in the U.S. and Canada having taken a cruise in 2008.

We believe that improving leisure travel trends along with a relatively low supply outlook in the near term from the Major North American Cruise Brands lead to an attractive business environment for our Company to operate in.

Attractive Demographic Trends to Drive Cruising Growth

The cruise market is comprised of a broad spectrum of customers and appeals to virtually all demographic categories. Based on CLIA’s 2008 study, the target North American cruise market, defined as households with income of $40,000 or more headed by a person who is at least 25 years old, is estimated to be 128.6 million people. Also according to the study, the average cruise customer is 50 years old with a household income of $109,000, with 70% of all cruise customers falling between the ages of 40 to 74. We believe this represents a very attractive segment of the population as the Brookings Institution recently reported that over the past decade the 55 to 64 age group was the fastest growing age group in the U.S. It is our belief that “Freestyle Cruising” will help us attract customers not only in the lucrative older population segment of North America, but also with younger generations, as well as Europeans, who we believe are more likely to enjoy greater levels of freedom during their cruise through the “Freestyle Cruising” product offering than was traditionally offered within the cruise industry.

Significant Value Proposition and High Level of Guest Satisfaction

We believe that the cost of a cruise vacation, relative to a comparable land-based resort or hotel vacation in Orlando or Las Vegas, offers an exceptional value proposition. When one considers that a typical cruise, for one all-inclusive price, offers its guests transportation to a variety of destinations, hotel-style accommodations, a generous diversity of food choices and a selection of daily entertainment options, this is compelling support for the cruise value proposition relative to other leisure alternatives. Cruises have become even more affordable for a greater number of North American customers over the past few years through the introduction of “Homeland Cruising”, which eliminates the cost of airfare commonly associated with a vacation.

According to CLIA’s 2008 study, approximately 70% of persons who have taken a cruise rate cruising as a high-value vacation alternative. In this same survey, CLIA reported that approximately 80% of cruise passengers agree that a cruise vacation is a good way to sample various destinations which they may visit again on a land-based vacation. In addition, CLIA’s surveys also show that cruise passengers have the highest level of satisfaction when compared to alternative land-based vacations like resorts and land-based escorted tours.

High Barriers to Entry

The cruise industry is characterized by high barriers to entry, including the existence of several established and recognizable brands, the large expense of building a new, sophisticated cruise ship, the long lead time necessary to construct new ships and limited newbuild shipyard capacity. Based on new ships announced over the past several years, the cost to build a cruise ship can range from approximately $500 million to $1.4 billion or approximately $200,000 to $425,000 per Berth, depending on the ship’s size and quality of product offering. The construction time of a newbuild ship is typically between 27 months to 36 months and requires significant upfront cash payments to fund construction costs before a dollar of revenue is generated. In addition, the shipbuilding industry is experiencing tightened capacity as the size of ships increases and the industry consolidates, with virtually all new capacity added in the last 20 years having been built by one of three major European shipbuilders.

 

 

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Segments and Brands

The different cruise lines that make up the global cruise vacation industry have historically been segmented by product offering and service quality into contemporary, premium and luxury brands. The contemporary segment generally includes cruises on larger ships that last seven days or less, provides a casual ambiance and is less expensive on average than the premium or luxury segments. The premium segment is generally characterized by cruises that last from seven to 14 nights with a higher quality product offering than the contemporary segment, appealing to a more affluent demographic. The luxury segment generally offers the highest level of service and quality, with longer cruises on the smallest ships. In classifying our competitors within the Major North American Cruise Brands, the contemporary segment has historically included Carnival Cruise Lines and Royal Caribbean International. The premium segment has historically included Celebrity Cruises, Holland America and Princess Cruises. By providing a diverse set of itineraries and a “Freestyle Cruising” experience, we believe that we straddle both the contemporary and premium segments as well as offer a unique combination of value and leisure services to cruise customers. Based on fleet counts as of December 31, 2010, the Major North American Cruise Brands together represent approximately 90% of the North American cruise market as measured by total Berths.

Our Competitive Strengths

We believe that the following business strengths will enable us to execute our strategy:

Leading Cruise Operator with High-Quality Product Offering

We believe that our modern fleet provides us with operational and strategic advantages as our entire fleet has been purpose-built for “Freestyle Cruising” with a wider range of passenger amenities relative to many of our competitors.

We believe that in recent years the distinction has been blurred between segments of the market historically known as “premium” and “contemporary,” with the Major North American Cruise Brands each offering a wide range of onboard experiences across their respective fleets. With the completion of our fleet renewal initiative, we believe that based on a number of different metrics that directly impact a passenger’s onboard experience, we compare favorably against the other Major North American Cruise Brands, with product attributes more in line with the premium segment.

 

   

Youngest Fleet. With a weighted-average age of 6.4 years (as of March 31, 2011) and no ships built before 1998, we have the youngest fleet among the Major North American Cruise Brands, which we believe allows us to offer a high-quality passenger experience with a significant level of consistency across our entire fleet. As a result of our younger fleet, we have a substantially higher percentage of outside balcony cabins across our fleet than the other contemporary brands, which helps drive higher Net Yields.

 

   

Rich Cabin Mix. As of March 31, 2011, 48% of our cabins had private balconies representing a higher mix of outside balcony cabins than the other contemporary brands. In addition, five of our ships offer a complex of private courtyard villas of up to approximately 570 square feet each. Customers staying in these villas are provided with personal butler service and exclusive access to a private courtyard area with private pools, sundeck, hot tubs, and fitness center. Six of our ships also offer luxury garden villas of up to 6,694 square feet, making them the largest accommodations at sea.

 

   

High-Quality Service. We believe we offer a very high level of onboard service, as demonstrated by our guest-to-crew ratio of 2.2 to 1, which is among the best of all the Major North American Cruise Brands.

 

 

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Diverse Selection of Premium Itineraries. For the year ended December 31, 2010, approximately 54% of our itineraries, by Capacity Days, were in more exotic, under-penetrated and less traditional locations, including Alaska, Hawaii, Bermuda and Europe, compared to the other contemporary brands which are focused primarily on itineraries in the Caribbean and Mexico. This mix of destinations is more consistent with the brands in the premium segment, and these itineraries typically attract higher Net Yields than Caribbean and Mexico sailings.

We believe that this high-quality product offering positions us well in comparison to the other Major North American Cruise Brands and provides an opportunity for continued Net Yield growth.

“Freestyle Cruising”

The most important differentiator for our brand is the “Freestyle Cruising” concept onboard all eleven of our ships. The essence of “Freestyle Cruising” is to provide a cruise experience that offers more freedom and flexibility than any other traditional cruise alternative. While many cruise lines have historically required guests to dine at assigned group tables and at specified times, “Freestyle Cruising” offers the flexibility and choice to our passengers who prefer to dine when they want, with whomever they want and without having to dress formally. Additionally, we have increased the number of activities and dining facilities available onboard, allowing passengers to tailor their onboard experience to their own schedules, desires and tastes. The key elements of “Freestyle Cruising” include:

 

   

flexible dining policy; no fixed dining times or pre-assigned seating in our dining rooms;

 

   

up to 21 dining options; in addition to multiple main dining rooms, a casual action station buffet and quick service outdoor grill, our ships offer a wide variety of specialty restaurants, with most offering a classic steakhouse, fine French, Japanese teppanyaki, sushi, Italian, Mexican and Asian fusion restaurants, which we believe is the widest selection of full-service dining options among the fleets of the Major North American Cruise Brands;

 

   

resort-casual dress code acceptable throughout the ship at all times;

 

   

increased service staff for a more personalized vacation experience;

 

   

replacement of cash tipping with an automated service charge system;

 

   

diverse “lifestyle” activities, including cultural and educational onboard programs along with an increased adventure emphasis for shore excursions; and

 

   

passenger-friendly disembarkation policies.

All of our ships have been custom designed and purpose-built for “Freestyle Cruising,” which we believe differentiates us significantly from our major competitors. We further believe that “Freestyle Cruising” attracts a passenger base that prefers the less structured, resort-style experience of our cruises. Building on the success of “Freestyle Cruising,” we implemented across our fleet “Freestyle 2.0” featuring significant enhancements to our onboard product offering. These enhancements include a major investment in the total dining experience; upgrading the stateroom experience across the ship; new wide-ranging onboard activities for all ages; and additional recognition, services and amenities for premium-priced balcony, suite and villa passengers. With Norwegian Epic we have enhanced “Freestyle Cruising” by offering what we believe to be unmatched flexibility in entertainment, offering guests a wide variety of activities and performances to choose from at any time of day or night.

 

 

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Established Brand Recognition

The Norwegian Cruise Line brand is well established in the cruise industry with a long track record of delivering a world class cruise product offering to its customers. We achieve high-quality feedback scores from our customers in the areas of overall service, physical ship attributes, onboard products and services, food and beverage offerings and overall entertainment and land-based excursion quality. Based on recent guest experience and loyalty reports, the quality of our guests’ experience generates high levels of customer loyalty, as demonstrated by the fact that approximately 30% of our customers are repeat customers and approximately 70% say they would recommend Norwegian Cruise Line to their friends and family. Brand recognition is also strong with over 92% of cruisers reporting familiarity with Norwegian. Additionally, our brand is known for freedom, flexibility and choice, all highly valued benefits within the cruise industry demographic.

Strong Cash Flow

Nearly all of our capital expenditures, other than those related to our newbuild projects (which are substantially financed) and the current renovation of our private island, relate to the maintenance of our young and modern fleet and shoreside operations, which includes investments in our IT infrastructure and business intelligence systems. Our newbuild projects include very attractive financing which will fund approximately 90% of the required pre-delivery and delivery date construction payments; as such, we expect the cost of our newbuild projects to have a minimal impact on our cash flow in the near term.

We are able to generate significant levels of cash flow due to our ability to pre-sell tickets and receive customer deposits with long lead times ahead of sailing. Our debt financing is relatively low cost, with a weighted-average interest rate cost of 6.30% as of March 31, 2011. In addition, we believe that the favorable U.S. federal income tax regime applicable to international shipping income will enhance our cash flow from operations that can be utilized to significantly de-lever our balance sheet over time.

Highly Experienced Management Team

Our senior management team is comprised of experienced executives with an average of 14.6 years in the cruise, travel, leisure and hospitality-related industries. Since the Apollo Funds’ and the TPG Viking Funds’ investment in January 2008, 28 of the top 37 members of our senior management team (including 12 of the top 14) have been newly recruited or promoted to their current position under the leadership of our President and Chief Executive Officer, Kevin M. Sheehan. Their combined experience in related hospitality industries coupled with their financial expertise is a significant contributor to improving the operating and financial performance of our Company.

Strong and Experienced Shareholders

Our shareholders or their affiliates have extensive experience investing in the cruise, leisure and travel-related industries. Affiliates of the Apollo Funds have invested significant equity and resources to the cruise and leisure industry with its investment in Prestige Cruise Holdings, Inc. which operates through two distinct upscale cruise brands, Oceania Cruises and Regent Seven Seas Cruises. In addition, affiliates of both Apollo and TPG Capital own Caesars Entertainment Corporation (“Caesars Entertainment”), with whom we have created a marketing alliance. Affiliates of TPG Capital are also significant investors in Sabre Holdings, a leading GDS (global distribution system) and parent of Travelocity.com. Genting HK, headquartered in Hong Kong, operates a leading Asian cruise line with destinations in Malaysia, Singapore, Hong Kong, Taiwan and Japan.

 

 

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Our Business Strategies

We seek to attract vacationers by offering new products and services and creating differentiated itineraries in new markets through new and existing modern ships with the aim of delivering a better, value-added, vacation experience to our customers relative to other broad-based or land-based leisure alternatives.

Attractive Product Offerings

We have a long history of product development within the cruise industry as one of the most established consumer brands. We became the first cruise operator to buy a private island in the Bahamas to offer a private beach experience to our passengers; and we were the first to introduce a 2,000-Berth megaship into the Caribbean market in 1980. More recently, we pioneered new concepts in cruising over the last decade with the development of “Homeland Cruising” and the launch of “Freestyle Cruising.”

We continue to enhance our product offerings with the delivery of Norwegian Epic in June 2010, which offers 21 dining options, a diverse range of accommodations and what we believe is the widest array of entertainment at sea. In addition to several differentiated full-service complimentary dining rooms, Norwegian Epic also features specialty restaurants including a classic steakhouse, sushi, Japanese teppanyaki, Brazilian churrascaria, Asian noodle bar, traditional Chinese, fine French and Italian restaurants. Guest accommodations on Norwegian Epic include the groundbreaking Studios, 128 cabins designed for solo travelers centered around the Studio Lounge, a private two-story lounge for studio guests. On its top decks, Norwegian Epic offers a “ship within a ship” in the largest suite complex at sea; the exclusive Villas compound includes two decks with 52 villas and penthouses, a private pool with multiple hot tubs and sundecks, a private fitness center and steam rooms, fine dining in the Epic Club restaurant, casual outdoor dining at the Courtyard Grill, and 24-hour concierge service, all exclusively for villa and penthouse guests. Entertainment onboard Norwegian Epic includes a wide variety of branded entertainment for guests to choose from, including exclusive engagements with Blue Man Group, Cirque Dreams & Dinner, Legends in Concert, Nickelodeon and the improvisational comedy troupe, The Second City.

Building on the success of Norwegian Epic, we are drawing on our legacy of new product development to create two new next-generation “Freestyle Cruising” ships, scheduled for delivery in the second quarter of 2013 and 2014, respectively. These 4,000 Berth ships will include many of the most popular elements of Norwegian Epic and the rest of our fleet together with new groundbreaking features, while keeping the consistent innovative spirit of “Freestyle Cruising” in the core of the design.

In 2009, we initiated a $25 million renovation to our private island, Great Stirrup Cay, which includes a new dining and bar facility to enhance the guest experience, as well as offering new activities such as wave runners, an aqua park and a stingray encounter experience. The enhancements are scheduled to be completed in phases through the end of 2011 and are expected to provide us with additional revenue generating opportunities on the island.

Maximize Net Yields

We are focused on growing our revenue through various initiatives aimed at increasing our ticket prices and occupancy as well as onboard spending to drive higher overall Net Yields. To maximize passenger ticket revenue, our revenue management strategy is focused on optimizing pricing and generating demand throughout the booking curve. We base-load our capacity by booking passengers as early before sailing as possible.

Base-loading is a strategy by which we focus on selling inventory further from the cruise departure date by targeting sales and marketing tactics, such as full ship Charters and corporate meetings which generate business with longer booking windows. Our base-loading strategy also includes strategic relationships with travel agencies and international tour operators, who commit to purchasing a certain level of inventory with long lead times.

 

 

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Through base-loading, we believe we will increase our Net Yields by filling our ships earlier, rather than discounting close to sailing dates in order to achieve our targeted Load Factors. Our specific initiatives to achieve this include:

 

   

Casino Player Strategy. As part of this strategy, we have non-exclusive arrangements with approximately 90 casino partners worldwide including Caesars Entertainment, which is owned by affiliates of both Apollo and TPG Capital, whereby loyal gaming customers are offered cruise reward certificates redeemable for cruises on our ships. Through property sponsored events and joint marketing programs, we have the opportunity to market cruises to Caesars Entertainment’s customers. These arrangements with our casino partners have the dual benefit of filling open inventory and reaching customers expected to generate above average onboard revenue through the casino and other onboard spending.

 

   

Strategic Relationships. Our base-loading strategy also includes strategic relationships with travel agencies and international tour operators, who commit to purchasing a certain level of inventory with long lead times.

 

   

Charter, Meeting & Incentive (“CM&I”) Sales. We are increasing our focus on driving additional business through the CM&I channel, which typically books very far in advance and can represent a significant portion of the ship, or even an entire sailing, in one transaction.

 

   

PROS Yield Management System. In late 2009, we implemented the PROS yield management system which allows us to better analyze and maximize our overall pricing decisions.

We continue to focus on various initiatives to drive increased onboard revenue across a variety of areas. From the year ended December 31, 2007 to the twelve months ended March 31, 2011, our net onboard and other revenue yield increased by approximately 24% from $42.86 to $53.29 primarily due to strong performance in casino, beverage sales, specialty dining and shore excursions. Our strategy for further driving increased onboard revenue includes, among other things, generating additional casino revenue through our arrangements with our casino partners, including Caesars Entertainment and Genting HK. These arrangements incorporate marketing resources to deliver cross-company advertising and marketing campaigns to promote our brand. We also focus on optimizing the utilization of our specialty restaurants that carry a cover charge, pre-booking and pre-selling additional onboard activities and encouraging our staff to offer our passengers additional revenue generating products and services. In addition, the delivery of Norwegian Epic has created additional onboard revenue opportunities through ticket sales and merchandising, based on our unique and premium entertainment offerings.

Brand Expansion Through Disciplined Newbuild Program

In September 2010, we reached an agreement with Meyer Werft GmbH of Papenburg, Germany to build two new cruise ships with financing commitments in place from a syndicate of banks for export credit financing. The new ships are scheduled for delivery in the second quarter of 2013 and 2014, respectively. Building on the success of Norwegian Epic, we have designed these two new next-generation “Freestyle Cruising” ships to include some of the most popular elements of our most recently delivered ships together with new and differentiated features, consistent with Norwegian Cruise Line’s legacy of new product development in the cruise industry. We believe that these ships will allow us to continue to expand the reach of our brand while driving shareholder value. Our financing arrangements provide for financing for approximately 90% of the contract price of the two ships. Each ship will approximate 143,500 Gross Tons and 4,000 Berths with an aggregate contract price of approximately €1.2 billion, or $1.7 billion based on the euro/U.S. dollar exchange rate as of March 31, 2011. This is approximately €155,000 per Berth, or $219,000 per Berth based on the euro/U.S. dollar exchange rate as of March 31, 2011, which we believe compares favorably against other recent newbuild ship orders in the industry.

 

 

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Improve Operating Efficiency and Lower Costs

We are continually focused on driving financial improvement through a variety of cost savings initiatives. These initiatives are focused on reducing costs while at the same time improving the overall product we deliver to our customers. Since the beginning of 2008, we have significantly reduced our operating cost base through various programs including contract renegotiations, overhead rationalization, and fuel consumption reduction initiatives. We also typically hedge a majority of our near term fuel consumption in order to provide greater visibility of our fuel expense; as of March 31, 2011, we had hedged approximately 57% of our remaining 2011 projected fuel consumption. We have also reduced our maintenance expense as a result of our fleet renewal program, as younger, more modern ships are typically less costly to maintain than older ships. Beginning in early 2008, we reduced our capacity in the Hawaii market, re-flagging and relocating two of three ships, which significantly reduced crew payroll expenses aboard those ships creating substantial margin expansion. In addition, we expect the economies of scale from our two newbuild ships to drive further operating efficiencies over the long term.

Expand and Strengthen Our Product Distribution Channels

As part of our growth strategy, we are continually looking for ways to deepen and expand our customer sales channels. We restructured our sales and marketing organization, which included the hiring of two Senior Vice Presidents and five Vice Presidents, to provide better focus on distribution through four primary channels: retail/travel agent, direct, international, and CM&I.

 

   

Retail/Travel Agent. We have implemented close to 100 individual projects specifically designed to improve our efficiency with the travel agency channels and our guests, ranging from more timely commission payments to aggressive call center quality monitoring. We also restructured our travel agent sales force, allowing us to more effectively support the larger accounts, which represent approximately 50% of our customers, with specific expertise and also gain access to a significantly larger number of travel partners through an outbound call center based in our Miami headquarters. We believe that our travel agent partners have witnessed a material improvement in our business practices and overall communication since the arrival of our new management team.

 

   

Direct. We continue to grow our direct business through investments in our brand and our website as well as increasing our direct sales force. Passengers booking directly with us tend to book earlier and in premium category inventory which provides higher Net Yields.

 

   

International. We have an international sales presence, with over 145 people in Europe and representatives covering Latin America, Australia and Asia. We are primarily focused on increasing our business in the European market, which has grown significantly in recent years but remains under-penetrated. In Europe, we now offer local itineraries year-round and our “Freestyle Cruising” has been well received. We are in the process of expanding our direct sales force in Europe which will allow us to develop our direct distribution in Europe in a manner similar to our U.S. operation. In support of this European strategy, we deployed our newest and most sophisticated ship, Norwegian Epic, in Europe for an extended summer season which began in May 2011. We are forging a closer distribution partnership with Genting HK, to develop product distribution across the Asia Pacific region.

 

   

CM&I. Our CM&I business focuses on full ship Charters as well as corporate meeting and incentive travel. These sales often have very long lead times and generate a higher level of Net Yield than sales through our other channels.

Across every distribution channel we are undertaking a major effort to grow demand with a targeted sales and marketing program for our premium stateroom categories, including our balcony and other premium stateroom categories, with a particular emphasis on our suites and villa complexes, which have increased as a percentage of our total inventory as a result of our fleet renewal.

 

 

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Our Fleet

Our ships are purpose-built ships that enable us to provide our customers with the ultimate “Freestyle Cruising” experience. Our ships have state-of-the-art passenger amenities, including up to 21 dining options together with hundreds of private balcony cabins on each ship. As of March 31, 2011, 48% of our cabins have private balconies representing a higher mix of outside cabins than the other contemporary brands. Private balcony cabins are very popular with passengers and offer the opportunity for increased revenue by allowing us to charge a premium. Five of our ships offer a complex of private courtyard villas, each with up to approximately 570 square feet, which provide personal butler service and exclusive access to a private courtyard area with private pools, sundeck, hot tubs, and fitness center. In addition, six of our ships have luxury garden villas with up to 6,694 square feet, making them the largest accommodations at sea. These luxury garden villas offer three separate bedroom areas, spacious living and dining room areas, as well as 24-hour, on-call butler and concierge service.

Continuing our tradition of new product development and the extension of the Norwegian Cruise Line brand, we took delivery of Norwegian Epic in June 2010. Norwegian Epic offers our passengers itineraries to the western and eastern Caribbean as well as Europe. The ship offers our customers a large aqua park, sports complex, two three-lane bowling alleys and our two-story Wii™ Wall. In addition, the ship features a spa facility and fitness center with more than 31,000 square feet. There are 21 dining options on Norwegian Epic offering one of the widest choices of dining experiences among the fleets of the Major North American Cruise Brands. Exclusive entertainment is offered aboard Norwegian Epic with the addition of brand new entertainment choices including Blue Man Group, Cirque Dreams & Dinner, Legends in Concert and Nickelodeon at Sea. We offer world-class entertainment in our jazz and blues club and our comedy club features the improvisational comedy troupe, The Second City. Norwegian Epic has been very well received by the market with the strongest bookings we have ever seen for a new ship, both in terms of price and volume. This positive reception has also benefited the rest of our fleet, which experienced significant bookings due to the uplift that Norwegian Epic has created for our brand overall. We believe the premium cabin mix of Norwegian Epic will drive further increases in Net Yield.

As further described in “—Our Business Strategies—Brand Expansion Through Disciplined Newbuild Program,” building on the successful launch of Norwegian Epic, we recently announced two new ships with approximately 4,000 Berths each, scheduled for delivery in the second quarter of 2013 and 2014, respectively.

Our Shareholders

Apollo

Apollo is a leading global alternative asset manager with offices in New York, Los Angeles, London, Frankfurt, Luxembourg, Singapore, Hong Kong and Mumbai. As of December 31, 2010, Apollo had assets under management of $67.6 billion invested in its private equity, capital markets and real estate businesses. Apollo owns a controlling interest in Prestige Cruises International, Inc. which operates through two distinct upscale cruise brands, Oceania Cruises and Regent Seven Seas Cruises. Apollo also has current investments in other travel and leisure companies, including Caesars Entertainment and AMC Entertainment and has in the past invested in Vail Resorts and Wyndham International and other hotel properties.

TPG Capital

TPG Capital is a leading private investment firm with $48 billion of assets under management as of March 31, 2011. TPG Capital has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, joint ventures and restructurings. TPG Capital seeks to invest in world-class franchises across a range of industries. Current investments include Caesars Entertainment,

 

 

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Neiman Marcus, Sabre, Energy Future Holdings (formerly TXU) and Univision. Past investments include Alltel, Burger King, Continental Airlines, Fairmont Raffles, Hotwire, Seagate and Texas Genco.

Genting HK

Genting HK was founded in 1993 and operates a leading cruise line in the Asia-Pacific region. Its headquarters are located in Hong Kong and it is represented in more than 20 locations worldwide, with offices and representatives in Asia, Australia, Europe, United Arab Emirates and the U.S. Genting HK currently has a fleet of seven ships, which offer various cruise itineraries in the Asia Pacific region.

Corporate Reorganization

In connection with the consummation of this offering, the Issuer will become the 100% owner and parent company of NCL Corporation Ltd. (the “Corporate Reorganization”). The Corporate Reorganization will be effected solely for the purpose of reorganizing our corporate structure as described herein. The Issuer will not, prior to the completion of the Corporate Reorganization, conduct any activities other than those incidental to its formation and to preparations for the Corporate Reorganization and this offering. The Issuer has only nominal assets and no liabilities prior to the consummation of the Corporate Reorganization and this offering. Upon closing, its only assets will be 100% of the ordinary shares of NCL Corporation Ltd. and cash proceeds of this offering not otherwise used or contributed to NCL Corporation Ltd. Also, as part of the Corporate Reorganization, (i) NCL Corporation Ltd.’s outstanding ordinary shares will be exchanged for our ordinary shares and (ii) we will issue an economically equivalent number of our ordinary shares, at an exchange formula based on the initial public offering price in this offering, in exchange for NCL Corporation Ltd.’s outstanding profits interests granted under the Profits Sharing Agreement, including the Ordinary Profits Units described below in “Compensation Discussion & Analysis.” Our executive officers and directors will be the same as the executive officers and directors of NCL Corporation Ltd. in effect immediately prior to the Corporate Reorganization, except that certain of our shareholders have a contractual right under the Shareholders’ Agreement to appoint two additional members, in the aggregate, to our board of directors (our “Board of Directors”) and we anticipate that they will do so prior to the consummation of this offering, thereby increasing the size of our Board of Directors to nine members. See “Certain Relationships and Related Party Transactions—The Shareholders’ Agreement.” Upon consummation of the Corporate Reorganization, our memorandum of association and bye-laws, and the rights, privileges and interests of our shareholders that will be in effect as of the consummation of this offering, will be as described in “Description of Share Capital.” See also “Management,” “Security Ownership of Certain Beneficial Owners and Management,” and “Certain Relationships and Related Party Transactions—The Shareholders’ Agreement.”

Additional Information

We are incorporated under the laws of Bermuda. Our registered offices are located at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM 11, Bermuda. Our principal executive offices are located at 7665 Corporate Center Drive, Miami, Florida 33126. Our telephone number is (305) 436-4000. Our website is www.ncl.com. The information that appears on our website is not part of, and is not incorporated by reference into, this prospectus.

 

 

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The Offering

 

Issuer

Norwegian Cruise Line Holdings Ltd. which, upon the consummation of this offering, will own 100% of the ordinary shares of NCL Corporation Ltd.

 

Ordinary shares offered by us

 

Ordinary shares to be outstanding after this offering

                     (assuming no exercise of the underwriters’ option to purchase additional ordinary shares) based upon an assumed initial public offering price of $             per ordinary share, which is the midpoint of the estimated price range set forth on the cover of this prospectus. In connection with the Corporate Reorganization and prior to the consummation of this offering, we will issue an economically equivalent number of our ordinary shares, based on the initial public offering price in this offering, in exchange for all outstanding NCL Corporation Ltd. profits interests granted under the Profits Sharing Agreement, including the Ordinary Profits Units (each as described in “Compensation Discussion & Analysis”).

 

  There will be          ordinary shares available for future awards under our new long-term incentive plan as of the consummation of this offering.

 

  A $1.00 increase or decrease in the assumed offering price of $             per ordinary share, which is the midpoint of the initial public offering price range set forth on the cover of this prospectus, would increase or decrease the number of ordinary shares to be outstanding after this offering by approximately              shares as a result of an increase or decrease in the ordinary shares we will issue in exchange for the profits interests, assuming the number of ordinary shares offered by us, as set forth above and on the cover page of the prospectus, remains the same.

 

Underwriters’ option to purchase additional shares

We have granted the underwriters an option for a period of 30 days to purchase from us an aggregate of up to                      additional ordinary shares.

 

Use of proceeds

We estimate that we will receive net proceeds from the sale of our ordinary shares in this offering, after deducting the underwriting discount and other estimated expenses, of approximately $             million, assuming the ordinary shares are offered at $             per ordinary share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. We intend to use the net proceeds that we receive to redeem or prepay outstanding debt and to pay expenses associated with this offering. A $1.00 increase or decrease in the assumed offering price of $            

 

 

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per ordinary share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase or decrease the net proceeds we receive from this offering by approximately $             million, assuming the number of ordinary shares offered by us, as set forth above and on the cover of this prospectus, remains the same and after deducting the underwriting discounts and other estimated expenses.

 

Listing

We expect to apply for listing of our ordinary shares on the NASDAQ Global Select Market under the symbol “NCLH”.

 

Dividend policy

We do not intend to pay dividends following this offering. Our debt agreements, among other things, restrict our ability to pay cash dividends to our shareholders. In addition, any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, business opportunities, contractual restrictions, restrictions imposed by applicable law and other factors that our Board of Directors deems relevant. See “Dividend Policy.”

 

Voting rights

Each of our ordinary shares will entitle its holder to one vote on all matters to be voted on by shareholders generally. Our public shareholders will have approximately     % of the voting power of the Issuer (or approximately     % if the underwriters exercise in full their option to purchase additional ordinary shares) and Genting HK, the Apollo Funds and the TPG Viking Funds, who will be contractually bound by the terms of the Shareholders’ Agreement (as defined elsewhere in this prospectus) with respect to the exercise of their voting rights in certain matters, will have approximately     % of the voting power of the Issuer (or approximately     % if the underwriters exercise in full their option to purchase additional ordinary shares). See “Description of Share Capital—Ordinary Shares—Transfer Restrictions.”

 

Risk factors

You should carefully read and consider the information set forth under “Risk Factors” beginning on page 18 of this prospectus and all other information set forth in this prospectus before investing in our ordinary shares.

 

Tax considerations

See “Material U.S. Federal Income Tax Considerations,” “Material Bermuda Tax Considerations” and “Business—Taxation of the Company” for more information regarding tax considerations.

 

 

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Summary Consolidated Financial Data

The summary consolidated financial and operating data presented in the tables below should be read in conjunction with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. In the table below, the consolidated balance sheets as of December 31, 2010, 2009 and 2008 and the related consolidated statements of operations and of cash flows for each of the three years in the period ended December 31, 2010 have been derived from our financial statements included elsewhere in this prospectus, with the exception of the consolidated balance sheet as of December 31, 2008 and pro forma earnings (loss) per share as adjusted which are not included. In addition, the consolidated balance sheets as of March 31, 2011 and March 31, 2010 and the related consolidated statements of operations and of cash flows for each of the three month periods ended March 31, 2011 and 2010 and the notes thereto have been derived from the unaudited financial statements also appearing herein, with the exception of the consolidated balance sheet as of March 31, 2010 and pro forma earnings (loss) per share as adjusted which are not included. The data as of and for the three months ended, in the opinion of management, contain all normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. Our financial data (unaudited) is also presented for the twelve months ended March 31, 2011. Historical results are not necessarily indicative of results that may be expected for any future period.

 

    Twelve Months
Ended March  31,
    Three Months Ended
March 31,
    Year Ended December 31,  
(in thousands, except per share data)   2011     2011     2010     2010     2009     2008  

Statement of operations data:

           

Revenue

           

Passenger ticket

  $ 1,445,519      $ 332,045      $ 279,032      $ 1,392,506      $ 1,275,844      $ 1,501,646   

Onboard and other

    645,617        163,465        137,470        619,622        579,360        604,755   
                                               

Total revenue

    2,091,136        495,510        416,502        2,012,128        1,855,204        2,106,401   
                                               

Cruise operating expense

           

Commissions, transportation and other

    390,443        89,614        78,826        379,655        377,036        410,061   

Onboard and other

    158,185        37,870        32,822        153,137        158,330        182,817   

Payroll and related

    273,572        70,317        62,135        265,390        252,426        309,083   

Fuel

    217,898        58,026        47,338        207,210        162,683        258,262   

Food

    120,295        30,982        24,751        114,064        118,899        126,736   

Other

    236,980        57,430        48,292        227,842        220,080        291,522   
                                               

Total cruise operating expense

    1,397,373        344,239        294,164        1,347,298        1,289,454        1,578,481   
                                               

Other operating expense

           

Marketing, general and administrative

    270,401        70,202        64,199        264,398        241,676        299,827   

Depreciation and amortization

    178,591        46,257        37,857        170,191        152,700        162,565   

Impairment loss(1)

    —          —          —          —          —          128,775   
                                               

Total other operating expense

    448,992        116,459        102,056        434,589        394,376        591,167   
                                               

Operating income (loss)

    244,771        34,812        20,282        230,241        171,374        (63,247
                                               

Non-operating income (expense)

           

Interest income

    82        10        28        100        836        2,796   

Interest expense, net of capitalized interest

    (185,812     (47,879     (35,839     (173,772     (115,350     (152,364

Other income (expense)(2)

    (30,917     2,432        (603     (33,952     10,373        1,012   
                                               

Total non-operating income (expense)

    (216,647     (45,437     (36,414     (207,624     (104,141     (148,556
                                               

Net income (loss) as reported

  $ 28,124      $ (10,625   $ (16,132   $ 22,617      $ 67,233      $ (211,803
                                               

Pro forma net income (loss) as adjusted(a)

    N/A      $          N/A      $          N/A        N/A   
                       

 

 

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    Twelve Months
Ended March  31,
    Three Months
Ended

March  31,
    Year Ended December 31,  
(in thousands, except per share data)   2011     2011     2010     2010     2009     2008  

Earnings (loss) per share as reported

           

Basic

  $ 1.33      $ (0.50   $ (0.76   $ 1.07      $ 3.24      $ (10.59
                                               

Diluted

  $ 1.32      $ (0.50   $ (0.76   $ 1.06      $ 3.23      $ (10.59
                                               

Pro forma earnings (loss) per share as adjusted(b)(c)

           

Basic

  $        $        $        $        $        $     
                                               

Diluted

  $        $        $        $        $        $     
                                               

 

  (a) 

Pro forma net income (loss) as adjusted reflects the interest expense adjustment as a result of the paydown of certain of our outstanding debt associated with the use of proceeds from this offering. See “Use of Proceeds.”

 

  (b) 

Pro forma earnings (loss) per share as adjusted for the three months ended March 31, 2011 and the year ended December 31, 2010 reflects the shares outstanding as a result of the exchange performed in connection with the capitalization of Norwegian Cruise Line Holdings Ltd. as well as the interest expense adjustment noted in footnote (a). For the twelve months ended March 31, 2011, the three months ended March 31, 2010 and for the years ended December 31, 2009 and 2008, the pro forma earnings (loss) per share as adjusted is based on the net income (loss) reported in those periods and reflects the exchange performed in connection with the capitalization.

 

  (c) 

We do not anticipate a material change in our use of proceeds, therefore any change in pro forma earnings (loss) per share as adjusted would not be material.

 

    As of or for the
Twelve Months
Ended March 31,
    As of or for the
Three Months Ended
March 31,
    As of or for the Year Ended
December 31,
 
(in thousands, except Other data)   2011     2011     2010     2010     2009     2008  

Balance sheet data: (at end of period)

           

Cash and cash equivalents

  $ 49,199      $ 49,199      $ 90,489      $ 55,047      $ 50,152      $ 185,717   

Advance ticket sales

    380,724        380,724        320,213        294,180        255,432        250,638   

Total assets

    5,563,971        5,563,971        4,824,284        5,563,513        4,811,348        5,047,141   

Total debt

    3,081,830        3,081,830        2,492,164        3,204,085        2,557,691        2,656,501   

Total liabilities

    3,825,205        3,825,205        3,133,853        3,831,845        3,106,797        3,497,342   

Total shareholders’ equity

    1,738,766        1,738,766        1,690,431        1,731,668        1,704,551        1,549,799   

Cash flow data:

           

Net cash provided by (used in) operating activities

    421,739        136,261        133,468        418,946        50,726        (23,297

Net cash used in investing activities

    (962,317     (19,901     (26,524     (968,940     (166,573     (166,236

Net cash provided by (used in) financing activities

    499,288        (122,208     (66,607     554,889        (19,718     334,959   

Other financial measures:(3)

           

Ship Contribution(5)

    693,763        151,271        122,338        664,830        565,750        527,920   

Adjusted EBITDA(6)

    427,081        81,861        59,525        404,745        332,533        285,950   

Capital expenditures:

           

Maintenance

    64,973        11,800        9,146        62,319        27,290        56,200   

Newbuild

    905,870        8,101        17,378        915,147        134,548        107,407   

Other data:(3)

           

Passenger Cruise Days

    9,925,241        2,510,738        2,144,546        9,559,049        9,243,154        9,503,839   

Capacity Days

    9,146,468        2,343,768        1,988,280        8,790,980        8,450,980        8,900,816   

Occupancy Percentage

    108.5     107.1     107.9     108.7     109.4     106.8

Gross Yield(4)

  $ 228.63      $ 211.42      $ 209.48      $ 228.89      $ 219.53      $ 236.65   

Net Yield(4)

  $ 168.65      $ 157.02      $ 153.33      $ 168.28      $ 156.18      $ 170.04   

 

(1) In 2008, an impairment loss of $128.8 million was recorded as a result of the cancellation of a contract to build a ship (we refer you to our consolidated financial statements, Note 3 “Property and Equipment”).

 

(2) For the three months ended March 31, 2011 the income was due to gains on fuel derivatives. In 2010, a loss of $33.1 million was recorded primarily due to losses on foreign exchange contracts associated with the financing of Norwegian Epic. In 2009 and 2008, foreign currency translation and interest rate swap gains (losses) of $(9.6) million and $101.8 million, respectively, were recorded primarily due to fluctuations in the euro/U.S. dollar exchange rate. In 2009 and 2008, these amounts were offset by the change in fair value of our fuel derivative contracts of $20.4 million and $(99.9) million, respectively.

 

 

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(3) We use certain non-GAAP financial measures, such as Ship Contribution, Adjusted EBITDA, Gross Yield, Net Yield and Net Revenue to enable us to analyze our performance. We utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of our performance and some of these measures are commonly used in the cruise industry to measure performance. Our use of non-GAAP financial measures may not be comparable to other companies within our industry. We refer you to “Terms Used in This Prospectus.”

 

(4) The following table is a reconciliation of total revenue to Net Revenue, Gross Yield and Net Yield:

 

    Twelve
Months
Ended
March 31,
    Three Months
Ended March 31,
    Year Ended December 31,  

(in thousands, except Capacity Days and

Yield data)

  2011     2011     2010     2010     2009     2008  

Passenger ticket revenue

  $ 1,445,519      $ 332,045      $ 279,032      $ 1,392,506      $ 1,275,844      $ 1,501,646   

Onboard and other revenue

    645,617        163,465        137,470        619,622        579,360        604,755   
                                               

Total revenue

    2,091,136        495,510        416,502        2,012,128        1,855,204        2,106,401   

Less:

           

Commissions, transportation and other expense

    390,443        89,614        78,826        379,655        377,036        410,061   

Onboard and other expense

    158,185        37,870        32,822        153,137        158,330        182,817   
                                               

Net Revenue(3)

  $ 1,542,508      $ 368,026      $ 304,854      $ 1,479,336      $ 1,319,838      $ 1,513,523   
                                               

Capacity Days

    9,146,468        2,343,768        1,988,280        8,790,980        8,450,980        8,900,816   

Gross Yield(3)

  $ 228.63      $ 211.42      $ 209.48      $ 228.89      $ 219.53      $ 236.65   

Net Yield(3)

  $ 168.65      $ 157.02      $ 153.33      $ 168.28      $ 156.18      $ 170.04   

 

 

(5) The following table is a reconciliation of total revenue to Ship Contribution:

 

    Twelve
Months
Ended
March 31,
    Three Months
Ended March 31,
    Year Ended December 31,  

(in thousands)

  2011     2011     2010     2010     2009     2008  

Total revenue

  $ 2,091,136      $ 495,510      $ 416,502      $ 2,012,128      $ 1,855,204      $ 2,106,401   

Less:

           

Total cruise operating expense

    1,397,373        344,239        294,164        1,347,298        1,289,454        1,578,481   
                                               

Ship Contribution

  $ 693,763      $ 151,271      $ 122,338      $ 664,830      $ 565,750      $ 527,920   
                                               

 

(6) We believe that Adjusted EBITDA is appropriate to provide additional information to investors as it enables us to analyze our performance. You are encouraged to evaluate each adjustment and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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. Our use of Adjusted EBITDA may not be comparable to other companies within our industry.

 

 

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The following table is a reconciliation of net income (loss) to Adjusted EBITDA:

 

    Twelve
Months
Ended
March 31,
    Three Months
Ended March 31,
    Year Ended December 31,  
(in thousands)   2011     2011     2010     2010     2009     2008  

Net income (loss)

  $ 28,124      $ (10,625   $ (16,132   $ 22,617      $ 67,233      $ (211,803

Interest, net

    185,730        47,869        35,811        173,672        114,514        149,568   

Depreciation and amortization

    178,591        46,257        37,857        170,191        152,700        162,565   

Impairment loss

    —          —          —          —          —          128,775   

Other (income) expense(a)

    30,917        (2,432     603        33,952        (10,373     (1,012

Legal fees and settlements(b)

    —          —          —          —          1,500        12,723   

Severance costs(c)

    —          —          —          —          —          10,840   

NCLA shutdown costs(d)

    —          —          —          —          —          14,119   

Norwegian Sky start-up expenses(e)

    —          —          —          —          —          8,504   

Consulting fees(f)

    —          —          —          —          —          8,378   

Other(g)

    3,719        792        1,386        4,313        6,959        3,293   
                                               

Adjusted EBITDA

  $ 427,081      $ 81,861      $ 59,525      $ 404,745      $ 332,533      $ 285,950   
                                               

 

  (a) Includes taxes, (gains)/losses on foreign currency, debt translation and derivatives and other (income) expense.
  (b) Includes a claim related to the S.S. Norway incident in 2003 and legal fees for credit facility amendments and the cancellation of a newbuild ship order.
  (c) Costs related to a severance agreement with our former Chief Executive Officer.
  (d) Costs in connection with the Hawaii restructuring, which were reimbursed by Genting HK pursuant to the RDA, (we refer you to “Certain Relationships and Related Party Transactions—The Reimbursement and Distribution Agreement”).
  (e) Costs incurred from the reflagging of Pride of Aloha from the U.S.-flagged fleet to the international fleet as Norwegian Sky.
  (f) Fees associated with the acquisition of our ordinary shares by the Apollo Funds.
  (g) Includes non-cash compensation and costs related to our Shipboard Retirement Plan in 2011 and 2010. Includes insurance claim recoveries and supplemental P&I insurance call, non-cash costs related to our Shipboard Retirement Plan and, beginning in 2009, management equity grants. Also includes costs related to a mechanical failure on one of our ships in 2009.

 

 

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RISK FACTORS

An investment in our ordinary shares involves a high degree of risk. In addition to the other information contained in this prospectus, you should carefully consider the following risk factors in evaluating us and our business before purchasing our ordinary shares. If any of the risks discussed in this prospectus actually occur, our business, financial condition and results of operations could be materially adversely affected. If this were to occur, the value of our ordinary shares could decline and you may lose all or part of your original investment. In connection with the forward-looking cautionary statements that appear in this prospectus, you should also carefully review the cautionary statement referred to under “Cautionary Statement Concerning Forward-Looking Statements.”

Risk factors related to our business

The specific risk factors set forth below, as well as the other information contained in this prospectus, could cause our actual results to differ from our expected or historical results and individually or any combination thereof could adversely affect our financial position and results of operations.

The adverse impact of the worldwide economic downturn and related factors such as high levels of unemployment and underemployment, fuel price increases, 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.

The demand for cruises is affected by international, national and local economic conditions. Adverse changes in the perceived or actual economic climate, such as higher fuel prices, higher interest rates, stock and real estate market declines and/or volatility, more restrictive credit markets, higher taxes, and changes in governmental policies could reduce the level of discretionary income or consumer confidence in the countries from which we source our guests. For example, the worldwide economic downturn has had an adverse effect on consumer confidence and discretionary income resulting in decreased demand and price discounting. We cannot predict the duration or magnitude of this downturn or the timing or strength of economic recovery. If the downturn continues for an extended period of time or worsens, we could experience a prolonged period of decreased demand and price discounting. In addition, the economic downturn has and may continue to adversely impact our suppliers, which can result in disruptions in service and financial losses.

An increase in cruise capacity.

Historically, cruise capacity has grown to meet the growth in demand. According to CLIA, North American cruise capacity, in terms of Berths, has increased from 2000 through 2010 at a compound annual growth rate of 6.7%. CLIA estimates that between 2011 and 2014, the North America based CLIA member line fleet will increase by approximately 14 ships, representing a compound annual capacity growth of 3.1%. In order to profitably utilize this new capacity, the cruise industry will likely need to improve its percentage share of the U.S. population who has cruised at least once, which is approximately 20%, according to CLIA. If there is an industry-wide increase in capacity without a corresponding increase in public demand, we, as well as the entire cruise industry, could experience reduced occupancy rates and/or be forced to discount our prices. In addition, increased cruise capacity could impact our ability to retain and attract qualified shipboard employees, including officers, at competitive levels and, therefore, increase our shipboard employee costs.

We face intense competition from other cruise companies as well as non-cruise vacation alternatives and we may not be able to compete effectively.

We face intense competition from other cruise companies, primarily with the other Major North American Cruise Brands, which together comprise approximately 90% of the North American cruise market as measured by total Berths. These brands include Carnival Cruise Lines and Royal Caribbean International which comprise the contemporary segment and Holland America, Princess Cruises and Celebrity Cruises which are part of the premium segment. As of December 31, 2010, Norwegian Cruise Line accounted for approximately 12% of the

 

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Major North American Cruise Brands’ capacity in terms of Berths. We compete against all of these operators principally on the quality of our ships, our differentiated product offering, selection of our itineraries and value proposition of our cruises. We also face competition for many itineraries from other cruise operators as well as competition from non-cruise vacation alternatives. In the event we do not compete effectively, our business could be adversely affected.

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments.

We are highly leveraged with a high level of variable rate debt, and our level of indebtedness could limit cash flow available for our operations and could adversely affect our financial condition, operations, prospects and flexibility. As of March 31, 2011, we had approximately $3.1 billion of total debt. See “Capitalization.”

Our substantial indebtedness could:

 

   

limit our ability to borrow money for our working capital, capital expenditures, development projects, debt service requirements, strategic initiatives or other purposes;

 

   

make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing our indebtedness;

 

   

require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness thereby reducing funds available to us for other purposes;

 

   

limit our flexibility in planning for, or reacting to, changes in our operations or business;

 

   

make us more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

 

   

make us more vulnerable to downturns in our business or the economy;

 

   

restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities;

 

   

restrict us from taking certain actions by means of restrictive covenants;

 

   

make our credit card processors seek more restrictive terms in respect of our credit card arrangements; and

 

   

expose us to the risk of increased interest rates as certain of our borrowings are at a variable rate of interest.

Based on our March 31, 2011 outstanding variable rate debt balance, a one percentage point increase in annual LIBOR interest rates would increase our annual interest expense by approximately $20 million, excluding the effects of capitalization of interest. In addition, future financings we may undertake may also provide for rates that fluctuate with prevailing interest rates.

Increases in fuel prices or other cruise operating costs.

Fuel costs accounted for 15.4% of our total cruise operating expense in 2010, 12.6% in 2009 and 16.4% in 2008. Future increases in the cost of fuel globally would increase the cost of our cruise ship operations. In addition, we could experience increases in other cruise operating costs, due to market forces and economic or political instability beyond our control.

 

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Conducting business internationally may result in increased costs and risks.

We operate our business internationally and plan to continue to develop our international presence. Operating internationally exposes us to a number of risks, including political risks, risks of increase in duties and taxes, risks relating to anti-bribery laws, as well as changes in laws and policies affecting cruising, vacation or maritime businesses, or governing the operations of foreign-based companies. Because some of our expenses are incurred in foreign currencies, we are exposed to exchange rate risks. Additional risks include interest rate movements, imposition of trade barriers and restrictions on repatriation of earnings.

The agreements governing our indebtedness contain restrictions that limit our flexibility in operating our business.

The agreements governing our indebtedness contain, and any instruments governing future indebtedness of ours would likely contain, a number of covenants that impose significant operating and financial restrictions on us, including restrictions on our and our subsidiaries’ ability to, among other things:

 

   

incur additional debt or issue certain preference shares;

 

   

pay dividends on or make distributions in respect of our share capital or make other restricted payments;

 

   

make certain investments;

 

   

sell certain assets;

 

   

create liens on certain assets;

 

   

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

 

   

enter into certain transactions with our affiliates; and

 

   

designate our subsidiaries as unrestricted subsidiaries.

As a result of these covenants, we are limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.

We have pledged a significant portion of our assets as collateral under our existing debt agreements. If any of the holders of our indebtedness accelerate the repayment of such indebtedness, there can be no assurance that we will have sufficient assets to repay our indebtedness.

Under our existing debt agreements we are required to satisfy and maintain specified financial ratios. Our ability to meet those financial ratios can be affected by events beyond our control, and there can be no assurance that we will meet those ratios. A failure to comply with the covenants contained in our existing debt agreements could result in an event of default under the agreements, which, if not cured or waived, could have a material adverse affect on our business, financial condition and results of operations. In the event of any default under our existing debt agreements, the holders of our indebtedness thereunder:

 

   

will not be required to lend any additional amounts to us, if applicable;

 

   

could elect to declare all indebtedness outstanding, together with accrued and unpaid interest and fees, to be due and payable and terminate all commitments to extend further credit, if applicable; or

 

   

could require us to apply all of our available cash to repay such indebtedness.

Such actions by the holders of our indebtedness could cause cross defaults under our other indebtedness. If we were unable to repay those amounts, the holders of our indebtedness under our existing senior secured credit facilities could proceed against the collateral granted to them to secure that indebtedness.

 

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If the indebtedness under our existing debt agreements were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full.

Despite our substantial indebtedness, we may still be able to incur significantly more debt. This could intensify the risks described above.

We and our subsidiaries may be able to incur substantial indebtedness at any time from time to time in the future. Although the terms of the agreements governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.

We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.

Our ability to satisfy our debt obligations will depend upon, among other things:

 

   

our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and

 

   

our future ability to borrow under certain of our existing senior secured credit facilities, the availability of which depends on, among other things, our complying with the covenants in such existing senior secured credit facilities.

We cannot assure you that our business will generate sufficient cash flow from operations, or that we will be able to draw under certain of our existing senior secured credit facilities or otherwise, in an amount sufficient to fund our liquidity needs.

If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due. Neither our shareholders nor any of their respective affiliates has any continuing obligation to provide us with debt or equity financing.

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

There can be no assurance that we will be able to borrow additional money on terms as favorable as our current debt, on commercially acceptable terms, or at all. As a result of the global credit crisis, certain financial institutions have filed for bankruptcy, have sold some or all of their assets, or may be looking to enter into a merger or other transaction with another financial institution. Consequently, some of the counterparties under our credit facilities, derivative instruments, contingent obligations, insurance contracts and new ship progress payment guarantees may be unable to perform their obligations or may breach their obligations to us under our contracts with them, which could include failures of financial institutions to fund required borrowings under our

 

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loan agreements and to pay us amounts that may become due under our derivative contracts and other agreements. Also, we may be limited in obtaining funds to pay amounts due to our counterparties under our derivative contracts and to pay amounts that may become due under other agreements. If we were to elect to replace any counterparty for their failure to perform their obligations under such instruments, we would likely incur significant costs to replace the counterparty. Any failure to replace any counterparties under these circumstances may result in additional costs to us or an ineffective instrument.

Terrorist acts, acts of piracy, armed conflict and threats thereof, and other international events impacting the security of travel could adversely affect the demand for cruises.

Past acts of terrorism have had an adverse effect on tourism, travel and the availability of air service and other forms of transportation. The threat or possibility of future terrorist acts, an outbreak of hostilities or armed conflict abroad or the possibility thereof, the issuance of travel advisories by national governments, and other geo-political uncertainties have had in the past and may again in the future have an adverse impact on the demand for cruises and consequently the pricing for cruises. Decreases in demand and reduced pricing in response to such decreased demand would adversely affect our business by reducing our profitability.

We rely on external distribution channels for passenger bookings, and major changes in the availability of external distribution channels could undermine our customer base.

In 2010, the majority of our passengers on our fleet booked their cruises through independent travel agents. In the event that the travel agent distribution channel is adversely impacted by the worldwide economic downturn, or other reason, this could reduce the distribution channels available for us to market and sell our cruises and we could be forced to increase the use of alternative distribution channels.

We rely on scheduled commercial airline services for passenger connections, and increases in the price of, or major changes or reduction in, commercial airline services could undermine our customer base.

A number of our passengers depend on scheduled commercial airline services to transport them to ports of embarkation for our cruises. Increases in the price of airfare, due to increases in fuel prices or other factors, would increase the overall vacation cost to our customers and may adversely affect demand for our cruises. Changes in commercial airline services as a result of strikes, weather or other events, or the lack of availability due to schedule changes or a high level of airline bookings could adversely affect our ability to deliver passengers to our cruises and/or increase our cruise operating expense.

Any delays in the construction and delivery of a cruise ship, including any termination or breach of contract or any repairs and refurbishments of one of our ships.

Delays in the construction, repair, refurbishment and delivery of a cruise ship can occur as a result of events such as insolvency, work stoppages, other labor actions or “force majeure” events experienced by our shipbuilders and other such companies that are beyond our control. Any termination or breach of contract following such an event may result in, among other things, the forfeiture of prior deposits or payments made by us, potential claims and impairment of losses. A significant delay in the delivery of a new ship, or a significant performance deficiency or mechanical failure of a new ship, particularly in light of decreasing availability of Dry-dock facilities, could have an adverse effect on our business.

Future epidemics and viral outbreaks.

Public perception about the safety of travel and adverse publicity related to passenger or crew illness, such as incidents of H1N1, stomach flu, or other contagious diseases, may impact demand for cruises. If any wide-ranging health scare should occur, our business would likely be adversely affected.

 

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The political environment in certain countries where we operate is uncertain and our ability to operate our business as we have in the past may be restricted.

We operate in waters and call at ports throughout the world, including geographic regions that, from time to time, have experienced political and civil unrest as well as insurrection and armed hostilities. Adverse international events could affect demand for cruise products generally and could have an adverse effect on us.

Adverse incidents involving cruise ships.

The operation of cruise ships carries an inherent risk of loss caused by adverse weather conditions, maritime disaster, including, but not limited to, oil spills and other environmental mishaps, fire, mechanical failure, collisions, human error, war, terrorism, piracy, political action, civil unrest and insurrection in various countries and other circumstances or events. Any such event may result in loss of life or property, loss of revenue or increased costs. The operation of cruise ships also involves the risk of other incidents at sea or while in port, including missing passengers, inappropriate crew or passenger behavior and onboard crimes, that may bring into question passenger safety, may adversely affect future industry performance and may lead to litigation against us. Although we place passenger safety as the highest priority in the design and operation of our fleet, we have experienced accidents and other incidents involving our cruise ships and there can be no assurance that similar events will not occur in the future. It is possible that we could be forced to cancel a cruise or a series of cruises due to these factors or incur increased port related and other costs resulting from such adverse events. Any such event involving our cruise ships or other passenger cruise ships may adversely affect passengers’ perceptions of safety or result in increased governmental or other regulatory oversight. An adverse judgment or settlement in respect of any of the ongoing claims against us may also lead to negative publicity about us. Anything that damages our reputation (whether or not justified), including adverse publicity about passenger safety, could have an adverse impact on demand, which could lead to price discounting and a reduction in our sales.

There can be no assurance that all risks are fully insured against or that any particular claim will be fully paid. Such losses, to the extent they are not adequately covered by contractual remedies or insurance, could affect our financial results. In addition, we have been and continue to be subject to calls, or premiums, in amounts based not only on our own claim records, but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity coverage for tort liability. Our payment of these calls could result in significant expenses to us which could reduce our cash flows. If we were to sustain significant losses in the future, our ability to obtain insurance coverage or coverage at commercially reasonable rates could be materially adversely affected.

Amendments to the collective bargaining agreements for crew members of our fleet.

Currently, we are a party to six collective bargaining agreements. Three of these agreements were recently renegotiated and are in effect through 2014. The three remaining collective bargaining agreements are scheduled to expire in 2018. Any amendments to such collective bargaining agreements in favor of the union members may increase labor costs.

Unavailability of ports of call.

We believe that attractive port destinations are a major reason why passengers choose to go on a particular cruise or on a cruise vacation. The availability of ports is affected by a number of factors, including, but not limited to, existing capacity constraints, security concerns, adverse weather conditions and natural disasters, financial limitations on port development, local governmental regulations and local community concerns about port development and other adverse impacts on their communities from additional tourists. Any limitations on the availability of our ports of call could adversely affect our business.

 

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The loss of key personnel or our inability to recruit or retain qualified personnel.

We rely upon the ability, expertise, judgment, discretion, integrity and good faith of our senior management team. Our success is dependent upon our personnel and our ability to recruit and retain high quality employees. We must continue to recruit, retain and motivate management and other employees sufficient to maintain our current business and support our projected growth. The loss of services of any of the key members of our management team could have a material adverse effect on our business. See “Management” for additional information about our management personnel.

The leadership of our President and Chief Executive Officer, Mr. Sheehan, and other executive officers has been a critical element of our success. The death or disability of Mr. Sheehan or other extended or permanent loss of his services, or any negative market or industry perception with respect to him or arising from his loss, could have a material adverse effect on our business. Our other executive officers and other members of senior management have substantial experience and expertise in our business and have made significant contributions to our growth and success. The unexpected loss of services of one or more of these individuals could also adversely affect us. We are not protected by key man or similar life insurance covering members of our senior management. We have employment agreements with our executive officers, but these agreements do not guarantee that any given executive will remain with us.

We are, and after this offering will continue to be, controlled by a group of shareholders that hold a significant percentage of our ordinary shares and whose interests may not be aligned with ours or our public shareholders.

Prior to this offering, all of our voting ordinary shares were held by affiliates of Genting HK, the Apollo Funds and the TPG Viking Funds. The Shareholders’ Agreement governing the relationship among those parties gives the Apollo Funds effective control over our affairs and policies, subject to certain limitations. Genting HK and the Apollo Funds also control the election of our Board of Directors, the appointment of management, the entering into of mergers, sales of substantially all of our assets and other material transactions. Immediately after giving effect to this offering, we expect that these shareholders will continue to control a majority of our ordinary shares, specifically, we expect that Genting HK, the Apollo Funds and the TPG Viking Funds will together own approximately     % of our outstanding ordinary shares (without giving effect to the exercise of the underwriters’ option to purchase additional shares). The directors appointed by Genting HK and the Apollo Funds will have the authority, on our behalf and subject to the terms of our debt agreements and the Shareholders’ Agreement, to issue additional ordinary shares, implement share repurchase programs, declare dividends, pay advisory fees and make other decisions, and they may have an interest in our doing so.

The interests of Genting HK, the Apollo Funds and the TPG Viking Funds could conflict with our public shareholders’ interests in material respects. Furthermore, Genting HK engages in the cruise line industry and leisure, entertainment and hospitality activities and Apollo and TPG Capital are in the business of making investments in companies and one or more of them has now and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us, as well as businesses that represent major customers of our business. Genting HK, Apollo and/or TPG Capital may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as our current shareholders continue to control a significant amount of our outstanding voting ordinary shares, such shareholders will continue to be able to strongly influence or effectively control our decisions. Additionally, the concentration of ownership held by our current shareholders could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination that you as a shareholder may otherwise view favorably. Certain provisions of our Shareholders’ Agreement may also make it more difficult to reissue additional equity capital in the future, if needed. See “Certain Relationships and Related Party Transactions—The Shareholders’ Agreement.”

 

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Risks related to the regulatory environment in which we operate

Future changes in applicable tax laws, or our inability to take advantage of favorable tax regimes.

We believe and have taken the position that our income that is considered to be shipping income (as defined in “Business—Taxation of the Company—Taxation of Operating Income: In General”) is exempt from U.S. federal income taxes under Section 883 of the Code, based upon certain assumptions as to shareholdings and other information as more fully described in “Business—Taxation of the Company—Exemption of Operating Income from U.S. Federal Income Taxation.” The provisions of Section 883 of the Code are subject to change at any time possibly with retroactive effect.

We believe and have taken the position that substantially all of our income currently derived from the international operation of ships is properly categorized as shipping income and that we currently do not have a material amount of non-qualifying income. It is possible, however, that a much larger percentage of our income does not qualify (or will not qualify) as shipping income. Moreover, the exemption for shipping income is only available for years in which we will satisfy complex stock ownership tests under Section 883 of the Code as described in “Business—Taxation of the Company—Exemption of Operating Income from U.S. Federal Income Taxation.” There are factual circumstances beyond our control, including changes in the direct and indirect owners of our shares, that could cause us or our subsidiaries to lose the benefit of this tax exemption. Finally, any changes in our operations could significantly increase our exposure to either the net tax regime or the 4% regime (each as defined in Business—Taxation of the Company—Taxation of Operating Income: In General), and we can give no assurances on this matter.

If we or any of our subsidiaries were not to qualify for the exemption under Section 883 of the Code, our or such subsidiary’s U.S. source income would be subject either to the net tax regime or the 4% regime (each as defined in “Business—Taxation of the Company—Taxation of Operating Income: In General”). We believe that we and our subsidiaries will satisfy the stock ownership tests imposed under Section 883 and therefore believe that we will qualify for the exemption under Section 883. However, as discussed above there are factual circumstances beyond our control that could cause us to not meet the stock ownership tests. Therefore, we can give no assurances on this matter. See “Business—Taxation of the Company—Exemption of Operating Income from U.S. Federal Income Taxation.”

We may be subject to state, local and non-U.S. income or non-income taxes in various jurisdictions, including those in which we transact business, own property or reside. We may be required to file tax returns in some or all of those jurisdictions. Our state, local or non-U.S. tax treatment may not conform to the U.S. federal income tax treatment discussed above. We may be required to pay non-U.S. taxes on dispositions of foreign property or operations involving foreign property may give rise to non-U.S. income or other tax liabilities in amounts that could be substantial.

The various tax regimes to which we are currently subject result in a relatively low effective tax rate on our world-wide income. These tax regimes, however, are subject to change, possibly with retroactive effect. Moreover, we may become subject to new tax regimes and may be unable to take advantage of favorable tax provisions afforded by current or future law.

We are subject to complex laws and regulations, including environmental laws and regulations, which could adversely affect our operations and any changes in the current laws and regulations could lead to increased costs or decreased revenue.

Some environmental groups have lobbied for more extensive oversight of cruise ships and have generated negative publicity about the cruise industry and its environmental impact. Increasingly stringent federal, state, local and international laws and regulations on environmental protection and health and safety of workers could affect our operations. The U.S. Environmental Protection Agency, the IMO, the Council of the European Union and individual states are considering, as well as implementing, new laws and rules to manage cruise ship waste. In addition, many aspects of the cruise industry are subject to governmental regulation by the U.S. Coast Guard

 

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as well as international treaties such as the SOLAS, MARPOL, the Standard of Training Certification and Watchkeeping for Seafarers (“STCW”) and its recently adopted conventions in ship manning. International regulations regarding ballast water and security levels are currently pending. Additionally, the U.S. and various state and foreign government or regulatory agencies have enacted or are considering new environmental regulations or policies, such as requiring the use of low sulfur fuels, increasing fuel efficiency requirements or further restricting emissions. Compliance with such laws and regulations may entail significant expenses for ship modification and changes in operating procedures which could adversely impact our operations as well as our competitors’ operations. In addition, the state of Alaska approved stringent regulations in 2008 concerning waste water discharge. In 2010, Alaska issued a final permit that regulates discharges of treated wastewater from cruise ships for the summer tourist seasons running from 2010 to 2012. The permit provides for the cruise companies to gather data on performance of new shipboard environmental control systems that will allow a scientific review committee to advise state officials on improving the regulations. The Maritime Labor Convention 2006 will become international law when the prerequisite number of countries ratify. It will regulate many aspects of maritime crew labor and will impact the worldwide sourcing of new crewmembers.

These issues are, and we believe will continue to be, an area of focus by the relevant authorities throughout the world. This could result in the enactment of more stringent regulation of cruise ships that would subject us to increasing compliance costs in the future.

By virtue of our operations in the U.S., the U.S. Federal Maritime Commission (“FMC”) requires us to maintain a third-party performance guarantee on our behalf in respect of liabilities for non-performance of transportation and other obligations to passengers. The FMC has proposed rules that would significantly increase the amount of our required guarantees and accordingly our cost of compliance. There can be no assurance that such an increase in the amount of our guarantees, if required, would be available to us. For additional discussion of the FMC’s proposed requirements, we refer you to “Business—Regulatory Issues.”

In 2007, the state of Alaska implemented taxes which have impacted the cruise industry operating in Alaska. It is possible that other states, countries or ports of call that our ships regularly visit may also decide to assess new taxes or fees or change existing taxes or fees specifically applicable to the cruise industry and its employees and/or guests, which could increase our operating costs and/or could decrease the demand for cruises.

The Passenger Shipping Association (“PSA”) has issued a legal requirement for us to maintain a security guarantee based on cruise business originated from the United Kingdom.

Changes in health, safety, security and other regulatory issues.

We are subject to various international, national, state and local health, safety and security laws and regulations. For additional discussion of these requirements, we refer you to “Business—Regulatory Issues.” Changes in existing legislation or regulations and the imposition of new requirements could adversely affect our business.

Implementation of U.S. federal regulations, requiring U.S. citizens to obtain passports for seaborne travel to all foreign destinations, could adversely affect our business. Many cruise customers may not currently have passports or may not obtain a passport card (previously known as the People Access Security Service Card, or PASS Card) as an alternative to a passport. This card was created to meet the documentary requirements of the Western Hemisphere Travel Initiative. Applications for the card have been accepted since February 1, 2008 and the cards were made available to the public beginning in July 2008. As of June 1, 2009, all U.S. citizens returning to the U.S. via land or sea borders must provide a PASS Card or U.S. Passport.

 

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Risk factors related to the offering and to our ordinary shares

There has been no prior market for our ordinary shares, and an active trading market for our ordinary shares may not develop, which could impede your ability to sell your ordinary shares and depress the market price of your ordinary shares.

Prior to this offering, there has been no public market for our ordinary shares, and we cannot assure you that an active and liquid public market for our ordinary shares will develop or be sustained after this offering or that investors will be able to sell the ordinary shares should they desire to do so. The failure of an active trading market to develop could affect your ability to sell your ordinary shares and depress the market price of your ordinary shares. We will negotiate with the representatives of the underwriters to determine the initial public offering price, which will be based on numerous factors and may bear no relationship to the price at which the ordinary shares will trade upon completion of this offering. See “Underwriting.” The market price of the ordinary shares may fall below the initial public offering price.

The price of our shares may fluctuate substantially, and your investment may decline in value.

The trading price of our ordinary shares could be volatile and subject to wide fluctuations in response to factors, many of which are beyond our control, including those described in this “Risk Factors” section.

Further, the stock markets in general, and the stock exchange and the market for travel and leisure-related companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. We cannot assure you that trading prices and valuations will be sustained. These broad market and industry factors may materially and adversely affect the market price of our ordinary shares, regardless of our operating performance. Market fluctuations, as well as general political and economic conditions in the countries where we operate, such as recession or currency exchange rate fluctuations, may also adversely affect the market price of our ordinary shares. In the past, following periods of volatility in the market price of a company’s securities, that company is often subject to securities class-action litigation. This kind of litigation, regardless of the outcome, could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect on our business, results of operations and financial condition.

We are a “controlled company” within the meaning of the rules of NASDAQ and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

Upon the closing of this offering, Genting HK, the Apollo Funds and the TPG Viking Funds will together continue to control a majority of our ordinary shares. As a result, we are a “controlled company” within the meaning of the corporate governance standards of NASDAQ. Under the rules of NASDAQ, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of our Board of Directors consists of independent directors;

 

   

the requirement that we have a nominating and governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the nominating and governance committee and compensation committee.

Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors nor will be required to have any independent directors on our nominating and governance committee and compensation committee, and we will not be required to have an annual performance evaluation

 

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of the nominating and governance committee and compensation committee. See “Management.” Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to the general corporate governance requirements (without giving effect to the “controlled company” exemptions) of NASDAQ.

Because the price you will pay for our ordinary shares is above our net tangible book value per ordinary share, you will experience an immediate and substantial dilution upon the completion of this offering.

The initial public offering price of our ordinary shares is substantially higher than what the net tangible book value per ordinary share will be immediately after this offering. If you purchase our ordinary shares in this offering, you will experience immediate dilution of approximately $             in the net tangible book value per ordinary share from the price you pay for our ordinary shares, representing the difference between (1) the assumed initial public offering price of $             per ordinary share, which is the mid-point of the range shown on the cover of this prospectus, and (2) the pro forma net tangible book value per ordinary share of $             at December 31, 2010 after giving effect to this offering. For additional information on discussion of the effect of a change in the price of this offering see “Dilution.”

There are regulatory limitations on the ownership and transfer of our ordinary shares.

The Bermuda Monetary Authority (the “BMA”) must approve all issuances and transfers of securities of a Bermuda exempted company like us. However, for as long as our ordinary shares are listed on an appointed stock exchange, the BMA has given general permission that permits the issue and free transferability of our ordinary shares to and among persons who are residents and non-residents of Bermuda for exchange control purposes. Any other transfers remain subject to approval by the BMA and such approval may be denied or delayed.

Additionally, our bye-laws will contain provisions that prevent third parties, other than the Apollo Funds, the TPG Viking Funds and Genting HK, from acquiring beneficial ownership of more than 4.9% of its outstanding shares without the consent of our Board of Directors and provide for the lapse of rights, and sale, of any shares acquired in excess of that limit.

As a shareholder of our Company, you may have greater difficulties in protecting your interests than as a shareholder of a U.S. corporation.

We are a Bermuda exempted company. The Companies Act 1981 of Bermuda (the “Companies Act”), which applies to our Company, differs in material respects from laws generally applicable to U.S. corporations and their shareholders. Taken together with the provisions of our bye-laws, some of these differences may result in you having greater difficulties in protecting your interests as a shareholder of our Company than you would have as a shareholder of a U.S. corporation. This affects, among other things, the circumstances under which transactions involving an interested director are voidable, whether an interested director can be held accountable for any benefit realized in a transaction with our Company, what approvals are required for business combinations by our Company with a large shareholder or a wholly-owned subsidiary, what rights you may have as a shareholder to enforce specified provisions of the Companies Act or our bye-laws, and the circumstances under which we may indemnify our directors and officers.

The market price for our ordinary shares could be subject to wide fluctuations and you could lose all or part of your investment.

The market price for our ordinary shares could be volatile and subject to wide fluctuations in response to factors including the following:

 

   

actual or anticipated fluctuations in our quarterly results;

 

   

the public’s reaction to our press releases, other public announcements and filings with the SEC;

 

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sales of large blocks of our ordinary shares, or the expectation that such sales may occur, including sales by our directors, officers and controlling shareholder;

 

   

market and industry perception of our success, or lack thereof, in pursuing our growth strategy;

 

   

announcements of new itineraries or services or the introduction of new ships by us or our competitors;

 

   

changes in financial estimates by securities analysts;

 

   

conditions in the cruise industry;

 

   

price and volume fluctuations in the stock markets generally;

 

   

announcements by our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

 

   

our involvement in significant acquisitions, strategic alliances or joint ventures;

 

   

changes in government and environmental regulation;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

additions or departures of key personnel;

 

   

changes in general market, economic and political conditions in the U.S. and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events; or

 

   

potential litigation.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our shares.

The substantial number of ordinary shares that will be eligible for sale in the near future may cause the market price of our ordinary shares to decline.

Immediately after the completion of this offering, we will have an aggregate of                      ordinary shares issued and outstanding (without giving effect to the exercise of the underwriters’ option to purchase additional shares). Our ordinary shares sold in this offering will be eligible for immediate resale in the public market without restrictions, and those held by our controlling shareholders and key employees may also be sold in the public market in the future subject to applicable lock-up agreements as well as the restrictions contained in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. If our controlling shareholders sell a substantial amount of our ordinary shares after the expiration of the lock-up period, the prevailing market price for our ordinary shares could be adversely affected. See “Shares Eligible for Future Sale” for a more detailed description of the eligibility of our ordinary shares for future sale.

We may issue our ordinary shares or other securities from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of ordinary shares, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those ordinary shares or other securities in connection with any such acquisitions and investments.

As soon as practicable after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering the ordinary shares reserved for issuance under our new long-term incentive plan. Accordingly,                  ordinary shares registered under such registration statement will be available for sale in the open market upon exercise by the holders, subject to vesting restrictions, Rule 144 limitations applicable to our affiliates and the contractual lock-up provisions in “Shares Eligible for Future Sale”.

 

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We may use the proceeds of this offering in ways with which you may not agree.

Although we currently intend to use the proceeds of this offering to redeem or prepay outstanding debt and to pay expenses associated with this offering, our management will have considerable discretion in the application of the net proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our efforts to achieve profitability or increase the price of our ordinary shares.

We may not pay dividends on our ordinary shares at any time in the foreseeable future.

We do not currently intend to pay dividends to our shareholders and our Board of Directors may never declare a dividend. You should not anticipate receiving dividends with respect to ordinary shares that you purchase in the offering. Our debt agreements restrict, and any of our future debt arrangements may restrict, among other things, the ability of our subsidiaries to pay distributions to the Issuer and our ability to pay cash dividends to our shareholders. In addition, any determination to pay dividends in the future will be entirely at the discretion of our Board of Directors and will depend upon our results of operations, cash requirements, financial condition, business opportunities, contractual restrictions, restrictions imposed by applicable law and other factors that our Board of Directors deems relevant. We are not legally or contractually required to pay dividends. Accordingly, if you purchase ordinary shares in this offering, it is likely that in order to realize a gain on your investment, the price of our ordinary shares will have to appreciate. This may not occur. In addition, we are a holding company and would depend upon our subsidiaries for their ability to pay distributions to us to finance any dividend or pay any other obligations of the Issuer. Investors seeking dividends should not purchase our ordinary shares. See “Dividend Policy.”

Enforcement of civil liabilities against us by our shareholders and others may be difficult.

We are a company incorporated under the laws of Bermuda. In addition, certain of our subsidiaries are organized outside the U.S. Certain of our directors named herein are resident outside the U.S. A substantial portion of our assets and the assets of such individuals are located outside the U.S. As a result, it may not be possible for investors to effect service of process upon us or upon such persons within the U.S. or to enforce against us or them in U.S. courts judgments obtained in U.S. courts predicated upon the civil liability provisions of the U.S. federal securities laws. Furthermore, we have been advised by counsel in Bermuda that the Bermuda courts will not enforce a U.S. federal securities law that is either penal or contrary to the public policy of Bermuda. An action brought pursuant to a public or penal law, the purpose of which is the enforcement of a sanction, power or right at the instance of the state in its sovereign capacity, may not be entertained by a Bermuda court. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies under U.S. federal securities laws, may not be available under Bermuda law or enforceable in a Bermuda court, as they may be contrary to Bermuda public policy. Further, no claim may be brought in Bermuda against us or our directors and officers in the first instance for violations of U.S. federal securities laws because these laws have no extraterritorial jurisdiction under Bermuda law and do not have force of law in Bermuda. A Bermuda court may, however, impose civil liability on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Bermuda law. However, section 281 of the Companies Act allows a Bermuda court, in certain circumstances, to relieve officers and directors of Bermuda companies of liability for acts of negligence, breach of duty or trust or other defaults.

 

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Provisions in our constitutional documents may prevent or discourage takeovers and business combinations that our shareholders might consider to be in their best interests.

Following the consummation of this offering, our bye-laws will contain provisions that may delay, defer, prevent or render more difficult a takeover attempt that our shareholders consider to be in their best interests. As a result, these provisions may prevent our shareholders from receiving a premium to the market price of our shares offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our shares if they are viewed as discouraging takeover attempts in the future. These provisions include (subject to the Shareholders’ Agreement):

 

   

the ability of our Board of Directors to designate one or more series of preference shares and issue preference shares without shareholder approval;

 

   

a classified board of directors;

 

   

the sole power of a majority of our Board of Directors to fix the number of directors;

 

   

the power of our Board of Directors to fill any vacancy on our Board of Directors in most circumstances, including when such vacancy occurs as a result of an increase in the number of directors or otherwise; and

 

   

advance notice requirements for nominating directors or introducing other business to be conducted at shareholder meetings.

Additionally, our bye-laws will contain provisions that prevent third parties, other than the Apollo Funds, the TPG Viking Funds and Genting HK, from acquiring beneficial ownership of more than 4.9% of its outstanding shares without the consent of our Board of Directors and provide for the lapse of rights, and sale, of any shares acquired in excess of that limit. The effect of these provisions as well as the significant ownership of ordinary shares by our existing shareholders, the Apollo Funds, the TPG Viking Funds and Genting HK, may preclude third parties from seeking to acquire a controlling interest in us in transactions that shareholders might consider to be in their best interests and may prevent them from receiving a premium above market price for their shares. See “Related Party Transactions—The Shareholders’ Agreement” and “Description of Share Capital.”

Any issuance of preference shares could make it difficult for another company to acquire us or could otherwise adversely affect holders of our ordinary shares, which could depress the price of our ordinary shares.

Our Board of Directors has the authority to issue preference shares and to determine the preferences, limitations and relative rights of shares of preference shares and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our shareholders, subject to the Shareholders’ Agreement. Our preference shares could be issued with voting, liquidation, dividend and other rights superior to the rights of our ordinary shares. The potential issuance of preference shares may delay or prevent a change in control of us, discouraging bids for our ordinary shares at a premium over the market price, and adversely affect the market price and the voting and other rights of the holders of our ordinary shares. See “Description of Share Capital.”

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the U.S. federal securities laws. All statements other than statements of historical facts in this prospectus, 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;

 

   

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, derivative instruments, 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 the spread of contagious diseases;

 

   

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

 

   

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

 

   

the continued availability of attractive port destinations;

 

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the control of our Company by certain of our shareholders whose interests may not be aligned with ours;

 

   

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;

 

   

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

 

   

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

 

   

the lack of acceptance of new itineraries, products or services by our targeted customers;

 

   

our ability to implement brand strategies and our shipbuilding programs, and to continue to expand our brands and business worldwide;

 

   

the costs of new initiatives and our ability to achieve expected cost savings from our new initiatives;

 

   

changes in interest rates and/or foreign currency rates;

 

   

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

 

   

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

 

   

the impact of pending or threatened litigation and investigations;

 

   

the impact of changes in our credit ratings;

 

   

the possibility of environmental liabilities and other damage that is not covered by insurance or that exceeds our insurance coverage;

 

   

our ability to attain and maintain any price increases for our products;

 

   

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

 

   

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

 

   

the impact of weather and natural disasters; 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 prospectus. 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.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from the sale of our ordinary shares in this offering, after deducting the underwriting discount and other estimated expenses, of approximately $           million, assuming the ordinary shares are offered at $           per ordinary share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. A $1.00 increase or decrease in the assumed offering price of $           per ordinary share would increase or decrease the net proceeds we receive from this offering by approximately $           million, assuming the number of ordinary shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the underwriting discounts and other estimated expenses. If the underwriters exercise their option to purchase additional ordinary shares in full, the net proceeds to us will be approximately $           million.

We intend to use the net proceeds that we receive to (i) redeem up to $157.5 million in aggregate principal amount of our $450.0 million senior secured notes, (ii) redeem up to $87.5 million in aggregate principal amount of our $250.0 million senior notes, (iii) pay redemption premiums of up to $26.8 million for the senior secured notes and the senior notes, (iv) prepay a portion of the amount outstanding under our $750.0 million senior secured revolving credit facility and (v) pay expenses associated with this offering.

The foregoing represents our current intentions with respect to the use of the net proceeds of this offering based upon our present plans and business conditions and no specific allocation of the net proceeds has yet been determined. Our determination of whether to use all or a portion of the net proceeds to redeem a portion of our $450.0 million senior secured notes and/or our $250.0 million senior notes or to repay a portion of the amount outstanding under our $750.0 million senior secured revolving credit facility will depend on interest rates and the prices at which our $450.0 million senior secured notes and $250.0 million senior notes are being purchased and sold in the market (including relative to the redemption price for such notes) at or following the consummation of this offering.

Any net proceeds used to redeem the $450.0 million senior secured notes and/or $250.0 million senior notes, or to repay the $750.0 million senior secured revolving credit facility, would be first contributed by the Company to NCL Corporation Ltd. so that NCL Corporation Ltd. may effect such redemption or repayment. Affiliates of certain of the underwriters in this offering currently hold or may in the future hold a portion of the notes to be redeemed and, accordingly, may receive a portion of the net proceeds from this offering as a result of the redemption of the notes. Pending the application of the net proceeds of this offering as described above, all or a portion of the net proceeds of this offering may be invested by us in short-term interest-bearing investments.

As of March 31, 2011, there was (i) $450.0 million (which does not include the original issue discount of $4.5 million) aggregate principal amount outstanding of our $450.0 million senior secured notes, which bear interest at a rate of 11.75% per annum and mature on November 15, 2016 and (ii) $250.0 million aggregate principal amount outstanding of our $250.0 million senior notes, which bear interest at a rate of 9.50% per annum and mature on November 15, 2018. We issued our $250.0 million senior notes in November 2010. The net proceeds from the offering of our $250.0 million senior notes were used to repay $147.0 million of certain of our secured term loans, $94.7 million of our $750.0 million senior secured revolving credit facility and $0.2 million of our capital lease obligations.

As of March 31, 2011, we had $185.0 million of indebtedness outstanding under our $750.0 million senior secured revolving credit facility which bears interest at a rate of LIBOR plus 4.00% per annum. The weighted-average interest rate on such borrowings as of March 31, 2011 was 4.31%. The commitments under our $750.0 million senior secured revolving credit facility are reduced by $46.9 million on a semi-annual basis (which commenced on October 28, 2010), and all borrowings under the facility mature on October 28, 2015.

 

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DIVIDEND POLICY

The Issuer does not intend to pay any dividends after completion of this offering. We intend to retain all available funds and any future earnings to fund the continued development and growth of our business. Our debt agreements restrict, among other things, our ability to pay cash dividends to our shareholders. See “Description of Certain Indebtedness.” Our future dividend policy will also depend on the requirements of any future financing agreements to which we may be a party and other factors considered relevant by our Board of Directors. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements, financial condition, business opportunities, contractual restrictions, restrictions imposed by applicable law and other factors that our Board of Directors deems relevant. For a discussion of our cash resources and needs, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and capital resources.”

 

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CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2011:

 

   

on an actual basis for NCL Corporation Ltd; and

 

   

for the Issuer, on an as adjusted basis to give effect to the Corporate Reorganization, the exchange of NCL Corporation Ltd.’s outstanding profits interests granted under the Profits Sharing Agreement for outstanding ordinary shares of the Issuer, the consummation of this offering and the application of the net proceeds thereof, after deducting underwriting discounts and commissions and estimated offering expenses, as described in “Use of Proceeds” included elsewhere in this prospectus but assuming the underwriters’ option to purchase additional shares has not been exercised.

A $1.00 increase or decrease in the assumed initial public offering price of $                per ordinary share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase or decrease the net proceeds we receive from this offering by approximately $                million and the number of ordinary shares to be outstanding after this offering by approximately                      shares, assuming the number of ordinary shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the underwriting discounts and other estimated expenses.

You should read this table in conjunction with our consolidated financial statements and the related notes which are included elsewhere in this prospectus as well as the sections entitled “Selected Consolidated Financial Data,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of March 31, 2011  
     Actual     As adjusted  
     (in thousands, except share
and per share data)
 

Debt, long-term (including current portion):

    

$450.0 million 11.75% senior secured notes(1)

   $ 450,000     

$250.0 million 9.50% senior notes

     250,000     

$750.0 million senior secured revolving credit facility

     185,000     

Other debt

     2,201,359     
                

Total debt

   $ 3,086,359     
                

Shareholders’ equity:

    

Preference shares; $.001 par value, 10,000,000 shares authorized, none outstanding

     —       

Ordinary shares; actual: $.0012 par value, 40,000,000 shares authorized; 21,000,000 shares issued and outstanding; as adjusted: $.001 par value, 490,000,000 ordinary shares authorized;                      ordinary shares issued and outstanding

     25     

Additional paid-in capital

     2,331,064     

Accumulated other comprehensive income

     21,760     

Retained earnings (deficit)

     (614,083  
                

Total shareholders’ equity

     1,738,766     
                

Total capitalization

   $ 4,825,125      $                
                

 

(1) Does not reflect original issue discount of $4.5 million.

 

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DILUTION

If you invest in the Issuer’s ordinary shares, your interest will be diluted to the extent of the difference between the initial public offering price per ordinary share and the net tangible book value per ordinary share upon completion of this offering.

Our net tangible book value at March 31, 2011 was $             million, or approximately $             per ordinary share, based on the number of ordinary shares outstanding at most recent quarter for which financial statements are available. Net tangible book value per ordinary share is equal to our total tangible assets less total liabilities, divided by the number of outstanding ordinary shares at March 31, 2011. After giving effect to (a) our issuance of                      ordinary shares upon the exchange of outstanding profits units in connection with this offering, and (b) our sale of                      ordinary shares in this offering at an assumed initial public offering price of $             per ordinary share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, and after deducting the underwriting discount and estimated offering expenses, our net tangible book value at March 31, 2011 would have been approximately $             million, or $             per ordinary share. This represents an immediate increase in net tangible book value of $             per ordinary share to existing shareholders, an immediate increase in net tangible book value of $             per ordinary share attributable to shareholders who will be issued ordinary shares in exchange for outstanding profits units and an immediate dilution of $             per ordinary share to new investors purchasing ordinary shares at the initial public offering price. The following table illustrates the per ordinary share dilution:

 

Assumed initial public offering price per share

   $                

Net tangible book value per share at most recent quarter for which financial statements are available

  

Increase in net tangible book value per share attributable to existing shareholders

  

Increase in net tangible book value attributable to shareholders who will be issued ordinary shares in exchange for outstanding profits units

  

Net tangible book value per share after the offering

  

Dilution per share to new investors

   $                

The following table summarizes at March 31, 2011, on an adjusted basis for this offering, the number of ordinary shares issued by the Issuer, the total consideration paid to the Issuer and the average price per ordinary share paid by existing shareholders and by investors purchasing ordinary shares in this offering (before deducting the estimated underwriting discount and estimated offering expenses) based upon an assumed initial public offering price of $             per ordinary share, which is the midpoint of the estimated price set forth on the cover of this prospectus, before deducting the underwriting discount and estimated offering expenses:

 

     Shares purchased      Total consideration      Average price
per share
 
     Number      Percent      Amount      Percent     

Existing shareholders

         $                       $                

New investors

              

Total

         $                       $                

There will be              ordinary shares issued and outstanding after the consummation of this offering (assuming no exercise of the underwriters’ option to purchase additional ordinary shares) based upon an assumed initial public offering price of $             per ordinary share, which is the midpoint of the estimated price range set forth on the cover of this prospectus. In connection with the Corporate Reorganization and prior to the consummation of this offering, we will issue an economically equivalent number of our ordinary shares, based on the initial public offering price in this offering, in exchange for all outstanding NCL Corporation Ltd. profits interests granted under the Profits Sharing Agreement, including the Ordinary Profits Units (each as described in “Compensation Discussion & Analysis”).

 

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There will be                  additional ordinary shares available for future awards under our new long-term incentive plan as of the consummation of this offering.

A $1.00 increase or decrease in the assumed offering price of $             per ordinary share, which is the midpoint of the initial public offering price range set forth on the cover of this prospectus, would increase or decrease the number of ordinary shares to be outstanding after this offering by approximately              shares as a result of an increase or decrease in the ordinary shares we will issue in exchange for the profits interests, assuming the number of ordinary shares offered by us, as set forth above and on the cover page of the prospectus, remains the same.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

You should read this data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. The data for the three months ended March 31, 2011 and 2010 has been derived from the unaudited financial statements included elsewhere in this prospectus with the exception of the consolidated balance sheet as of March 31, 2010 and which, in the opinion of management, contain all normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. The data, as it relates to each of the years 2006 through 2010, has been derived from annual financial statements, including the audited consolidated balance sheets as of December 31, 2010 and 2009 and the related consolidated statements of operations and of cash flows for each of the three years in the period ended December 31, 2010 and the notes thereto appearing elsewhere in this prospectus. Our consolidated financial statements have been prepared in accordance with GAAP in the U.S.

 

    Three Months Ended
March 31,
    Year Ended December 31,  

(in thousands, except per share data)

  2011     2010     2010     2009     2008     2007     2006  

Statement of operations data:

             

Revenue

             

Passenger ticket

  $ 332,045      $ 279,032      $ 1,392,506      $ 1,275,844      $ 1,501,646      $ 1,575,851      $ 1,442,628   

Onboard and other

    163,465        137,470        619,622        579,360        604,755        601,043        537,313   
                                                       

Total revenue

    495,510        416,502        2,012,128        1,855,204        2,106,401        2,176,894        1,979,941   
                                                       

Cruise operating expense

             

Commissions, transportation and other

    89,614        78,826        379,655        377,036        410,061        497,301        487,294   

Onboard and other

    37,870        32,822        153,137        158,330        182,817        204,768        186,240   

Payroll and related

    70,317        62,135        265,390        252,426        309,083        374,291        354,929   

Fuel

    58,026        47,338        207,210        162,683        258,262        193,173        164,530   

Food

    30,982        24,751        114,064        118,899        126,736        120,633        102,324   

Other

    57,430        48,292        227,842        220,080        291,522        306,853        275,697   
                                                       

Total cruise operating expense

    344,239        294,164        1,347,298        1,289,454        1,578,481        1,697,019        1,571,014   
                                                       

Other operating expense

             

Marketing, general and administrative

    70,202        64,199        264,398        241,676        299,827        287,093        249,250   

Depreciation and amortization

    46,257        37,857        170,191        152,700        162,565        148,003        119,097   

Impairment loss(1)

    —          —          —          —          128,775        2,565        8,000   
                                                       

Total other operating expense

    116,459        102,056        434,589        394,376        591,167        437,661        376,347   
                                                       

Operating income (loss)

    34,812        20,282        230,241        171,374        (63,247     42,214        32,580   
                                                       

Non-operating income (expense)

             

Interest income

    10        28        100        836        2,796        1,384        3,392   

Interest expense, net of capitalized interest

    (47,879     (35,839)        (173,772     (115,350     (152,364     (175,409     (136,478

Other income (expense)(2)

    2,432        (603)        (33,952     10,373        1,012        (95,151     (30,393
                                                       

Total non-operating income (expense)

    (45,437     (36,414)        (207,624     (104,141     (148,556     (269,176     (163,479
                                                       

Net income (loss)

  $ (10,625     $(16,132)      $ 22,617      $ 67,233      $ (211,803   $ (226,962   $ (130,899
                                                       

Earnings (loss) per share

             

Basic

  $ (0.50   $ (0.76   $ 1.07      $ 3.24      $ (10.59   $ (11.35   $ (6.55
                                                       

Diluted

  $ (0.50   $ (0.76   $ 1.06      $ 3.23      $ (10.59   $ (11.35   $ (6.55
                                                       

 

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    As of or for the
Three Months Ended
March 31,
    As of or for the Year Ended December 31,  

(in thousands, except operating
data)

  2011     2010     2010     2009     2008     2007     2006  

Balance sheet data:

             

Assets

             

Cash and cash equivalents

  $ 49,199      $ 90,489      $ 55,047      $ 50,152      $ 185,717      $ 40,291      $ 63,530   

Property and equipment, net

    4,612,925        3,824,794        4,639,281        3,836,127        4,119,222        4,243,872        3,816,292   

Total assets

    5,563,971        4,824,284        5,563,513        4,811,348        5,047,141        5,033,698        4,629,624   

Liabilities and shareholders’ equity

             

Advance ticket sales

    380,724        320,213        294,180        255,432        250,638        332,802        314,050   

Other current liabilities

    312,360        263,468        280,900        235,020        558,683        291,509        298,768   

Current portion of long-term debt

    89,030        17,168        78,237        3,586        182,487        191,172        154,638   

Long-term debt

    2,992,800        2,474,996        3,125,848        2,554,105        2,474,014        2,977,888        2,405,357   

Other long-term liabilities

    50,291        58,008        52,680        58,654        31,520        4,801        1,744   

Total shareholders’ equity(3)

    1,738,766        1,690,431        1,731,668        1,704,551        1,549,799        1,235,526        1,455,067   

Operating data:

             

Passengers Carried

    372,700        305,025        1,404,137        1,318,441        1,270,281        1,304,385        1,153,844   

Passenger Cruise Days

    2,510,738        2,144,546        9,559,049        9,243,154        9,503,839        9,857,946        8,807,632   

Capacity Days

    2,343,768        1,988,280        8,790,980        8,450,980        8,900,816        9,246,715        8,381,445   

Occupancy Percentage

    107.1     107.9     108.7     109.4     106.8     106.6     105.1

Other financial data:

             

Net cash provided by (used in) operating activities

    136,261        133,468        418,946        50,726        (23,297     36,331        147,504   

Net cash used in investing activities

    (19,901     (26,524     (968,940     (166,573     (166,236     (581,578     (756,245

Net cash provided by (used in) financing activities

    (122,208     (66,607     554,889        (19,718     334,959        522,008        611,855   

Additions to property and equipment

    (19,901     (26,524     (977,466     (161,838     (163,607     (582,837     (809,403

 

(1) In 2008, an impairment loss of $128.8 million was recorded as a result of the cancellation of a contract to build a ship (we refer you to our consolidated financial statements Note 3 “Property and Equipment”), in 2007, an impairment loss of $2.6 million was recorded as a result of a write-down relating to the sale of Oceanic, formerly known as Independence; and in 2006, an impairment loss of $8.0 million was recorded as a result of a write-down relating to the Orient Lines tradename.

 

(2) For the three months ended March 31, 2011 the income was due to gains on fuel derivatives. In 2010, a loss of $33.1 million was recorded primarily due to losses on foreign exchange contracts associated with the financing of Norwegian Epic. In 2009, 2008, 2007 and 2006, foreign currency translation and interest rate swap gains (losses) of $(9.6) million, $101.8 million, $(94.5) million, and $(38.9) million, respectively, were recorded primarily due to fluctuations in the euro/U.S. dollar exchange rate. In 2009 and 2008, these amounts were offset by the change in fair value of our fuel derivative contracts of $20.4 million and $(99.9) million, respectively.

 

(3) In 2009, we received $100.0 million from our shareholders and issued 1,000,000 additional ordinary shares of $.0012 par value to our shareholders pro rata in accordance with their percentage ownership resulting in an aggregate 21,000,000 ordinary shares of $.0012 par value issued and outstanding as of December 31, 2009 (we refer you to “Consolidated Statements of Changes in Shareholders’ Equity” and Note 5 “Related Party Disclosures”) in our notes to our consolidated financial statements.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Non-GAAP financial measures

We use certain non-GAAP financial measures, such as Net Revenue, Net Yield, Net Cruise Cost 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 and are commonly used in the cruise industry to measure revenue performance. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Cost and Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance and are commonly used in the cruise industry as a measurement of costs.

We believe that Adjusted EBITDA is appropriate to provide additional information to investors as it enables us to analyze our performance. You are encouraged to evaluate each adjustment and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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.

Our non-GAAP financial measures may not be comparable to other companies within our industry. Please see a historical reconciliation of these measures to items in our consolidated financial statements below in the “Results of Operations” section.

Overview

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:

 

   

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.

 

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

Critical accounting policies

Our consolidated financial statements have been prepared in accordance with GAAP in the U.S. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make these estimates and judgments. Actual results could differ materially from these estimates. We believe that the following critical accounting policies affect the significant estimates used in the preparation of our consolidated financial statements. These critical accounting policies, which are presented in detail in the notes to our audited consolidated financial statements, relate to ship accounting, asset impairment and contingencies.

Ship accounting

Ships represent our most significant assets, and we record them at cost less accumulated depreciation. Depreciation of ships is computed on a straight-line basis over the estimated service lives of primarily 30 years after a 15% reduction for the estimated residual value of the ship. Improvement costs that we believe add value to our ships are capitalized to the ship and depreciated over the improvements’ estimated useful lives. Maintenance and repairs activities are charged to expense as incurred. We account for Dry-dock costs under the direct expense method which requires us to expense all Dry-dock costs as incurred.

We determine the useful life of our ships based primarily on our estimates of the average useful life of the ships’ major component systems, such as cabins, main diesels, main electric, superstructure and hull. In addition, we consider the impact of anticipated changes in the vacation market and technological conditions and historical useful lives of similarly-built ships. Given the large and complex nature of our ships, our accounting estimates related to ships and determinations of ship improvement costs to be capitalized require considerable judgment and are inherently uncertain. Should certain factors or circumstances cause us to revise our estimate of ship service lives or projected residual values, depreciation expense could be materially lower or higher. If circumstances cause us to change our assumptions in making determinations as to whether ship improvements should be capitalized, the amounts we expense each year as maintenance and repairs costs could increase, partially offset by a decrease in depreciation expense. If we reduced our estimated average 30-year ship service life by one year, depreciation expense for the year ended December 31, 2010 would have increased by $4.6 million. In addition, if our ships were estimated to have no residual value, depreciation expense for the same period would have increased by $23.2 million.

We believe our estimates for ship accounting are reasonable and our methods are consistently applied. We believe that depreciation expense is based on a rational and systematic method to allocate our ships’ costs to the periods that benefit from the ships’ usage.

Asset impairment

We review our long-lived assets, principally ships, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated at the lowest level for which there are identifiable cash flows that are largely independent of the cash

 

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flows of other groups of assets. We consider historical performance and future estimated results in our evaluation of potential impairment and then compare the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its fair value. We estimate fair value based on the best information available making whatever estimates, judgments and projections considered necessary. The estimation of fair value is generally measured by discounting expected future cash flows at discount rates commensurate with the risk involved.

Goodwill and other indefinite-lived assets, principally trade names, are reviewed for impairment on an annual basis or earlier if there is an event or change in circumstances that would indicate that the carrying value of these assets could not be fully recovered.

We believe our estimates and judgments with respect to our long-lived assets, principally ships, and goodwill and other indefinite-lived intangible assets are reasonable. Nonetheless, if there was a material change in assumptions used in the determination of such fair values or if there is a material change in the conditions or circumstances that influence such assets, we could be required to record an impairment charge.

Contingencies

Periodically, we assess potential liabilities related to any lawsuits or claims brought against us or any asserted claims, including tax, legal and/or environmental matters. Although it is typically very difficult to determine the timing and ultimate outcome of such actions, we use our best judgment to determine if it is probable that we will incur an expense related to the settlement or final adjudication of such matters and whether a reasonable estimation of such probable loss, if any, can be made. In assessing probable losses, we take into consideration estimates of the amount of insurance recoveries, if any. In accordance with the guidance on accounting for contingencies, we accrue a liability when we believe a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recoveries, although we believe that our estimates and judgments are reasonable, it is possible that certain matters may be resolved for amounts materially different from any estimated provisions or previous disclosures.

Executive overview

Three months ended March 31, 2011 (“2011”) compared to the three months ended March 31, 2010 (“2010”)

Total revenue increased 19.0% to $495.5 million in 2011 compared to $416.5 million in 2010. Net Revenue increased to $368.0 million in 2011 from $304.9 million in 2010 from the addition of Norwegian Epic to the fleet together with an improvement in Net Yield of 2.4%.

Operating income increased 71.6% to $34.8 million in 2011 compared to $20.3 million in 2010 while Adjusted EBITDA increased 37.5% to $81.9 million. Our cost containment measures and greater economies of scale continued to have a positive impact on our costs per Capacity Day and have been able to mitigate the increase in the price of fuel. As of March 31, 2011, we had hedged approximately 57% of our remaining 2011 projected fuel consumption.

 

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Results of operations

We reported total revenue, total cruise operating expense, operating income (loss) and net income (loss) as shown in the following table (in thousands, except per share data):

 

     Three Months Ended
March 31,
    Year Ended December 31,  
   2011     2010     2010      2009      2008  

Total revenue

   $ 495,510      $ 416,502      $ 2,012,128       $ 1,855,204       $ 2,106,401   
                                          

Total cruise operating expense

   $ 344,239      $ 294,164      $ 1,347,298       $ 1,289,454       $ 1,578,481   
                                          

Operating income (loss)

   $ 34,812      $ 20,282      $ 230,241       $ 171,374       $ (63,247 )(1) 
                                          

Net income (loss)

   $ (10,625   $ (16,132   $ 22,617       $ 67,233       $ (211,803 )(1) 
                                          

Earnings (loss) per share

            

Basic

   $ (0.50   $ (0.76   $ 1.07       $ 3.24       $ (10.59
                                          

Diluted

   $ (0.50   $ (0.76   $ 1.06       $ 3.23       $ (10.59
                                          

 

(1) Includes an impairment loss of $128.8 million as a result of the cancellation of a contract to build a ship.

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

 

    Three Months Ended
March 31,
    Year Ended December 31,  
    2011     2010     2010     2009     2008  

Revenue

         

Passenger ticket

    67.0     67.0     69.2     68.8     71.3

Onboard and other

    33.0     33.0     30.8     31.2     28.7
                                       

Total revenue

    100.0     100.0     100.0     100.0     100.0
                                       

Cruise operating expense

         

Commissions, transportation and other

    18.1     18.9     18.9     20.3     19.5

Onboard and other

    7.6     7.9     7.6     8.5     8.7

Payroll and related

    14.2     14.9     13.2     13.6     14.7

Fuel

    11.7     11.4     10.3     8.8     12.3

Food

    6.3     5.9     5.7     6.4     6.0

Other

    11.6     11.6     11.3     11.9     13.8
                                       

Total cruise operating expense

    69.5     70.6     67.0     69.5     75.0
                                       

Other operating expense

         

Marketing, general and administrative

    14.2     15.4     13.1     13.0     14.2

Depreciation and amortization

    9.3     9.1     8.5     8.2     7.7

Impairment loss

    —       —       —       —       6.1 %(1) 
                                       

Total other operating expense

    23.5     24.5     21.6     21.2     28.0
                                       

Operating income (loss)

    7.0     4.9     11.4     9.3     (3.0 )%(1) 
                                       

Non-operating income (expense)

         

Interest income

    —       —       —       —       0.1

Interest expense, net of capitalized interest

    (9.6 )%      (8.6 )%      (8.6 )%      (6.2 )%      (7.2 )% 

Other income (expense)

    0.5     (0.2 )%      (1.7 )%      0.5     —  
                                       

Total non-operating income (expense)

    (9.1 )%      (8.8 )%      (10.3 )%      (5.7 )%      (7.1 )% 
                                       

Net income (loss)

    (2.1 )%      (3.9 )%      1.1     3.6     (10.1 )%(1) 
                                       

 

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(1) Includes an impairment loss of $128.8 million as a result of the cancellation of a contract to build a ship.

The following table sets forth selected statistical information:

 

     Three Months Ended
March 31,
    Year Ended December 31,  
             2011                     2010                     2010                     2009             2008  

Passengers Carried

     372,700        305,025        1,404,137        1,318,441 (1)      1,270,281   

Passenger Cruise Days

     2,510,738        2,144,546        9,559,049        9,243,154        9,503,839   

Capacity Days

     2,343,768        1,988,280        8,790,980        8,450,980        8,900,816   

Occupancy Percentage

     107.1     107.9     108.7     109.4     106.8

 

(1) Passengers Carried increased in 2009 primarily due to the three and four-night itinerary of Norwegian Sky compared to the seven-night itinerary with Pride of Aloha in 2008.

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

 

    Three Months Ended
March 31,
    Year Ended December 31,  
    2011     2010             2010                     2009             2008  

Passenger ticket revenue

  $ 332,045      $ 279,032      $ 1,392,506      $ 1,275,844      $ 1,501,646   

Onboard and other revenue

    163,465        137,470        619,622        579,360        604,755   
                                       

Total revenue

    495,510        416,502        2,012,128        1,855,204        2,106,401   

Less:

         

Commissions, transportation and other expense

    89,614        78,826        379,655        377,036        410,061   

Onboard and other expense

    37,870        32,822        153,137        158,330        182,817   
                                       

Net Revenue

  $ 368,026      $ 304,854      $ 1,479,336      $ 1,319,838      $ 1,513,523   
                                       

Capacity Days

    2,343,768        1,988,280        8,790,980        8,450,980        8,900,816   

Gross Yield

  $ 211.42      $ 209.48      $ 228.89      $ 219.53      $ 236.65   

Net Yield

  $ 157.02      $ 153.33      $ 168.28      $ 156.18      $ 170.04   

Gross Cruise Cost and Net Cruise Cost were calculated as follows (in thousands, except Capacity Days and per Capacity Day data):

 

    Three Months Ended
March 31,
    Year Ended December 31,  
    2011     2010             2010                     2009             2008  

Total cruise operating expense

  $ 344,239      $ 294,164      $ 1,347,298      $ 1,289,454      $ 1,578,481   

Marketing, general and administrative expense

    70,202        64,199        264,398        241,676        299,827   
                                       

Gross Cruise Cost

    414,441        358,363        1,611,696        1,531,130        1,878,308   

Less:

         

Commissions, transportation and other expense

    89,614        78,826        379,655        377,036        410,061   

Onboard and other expense

    37,870        32,822        153,137        158,330        182,817   
                                       

Net Cruise Cost

    286,957        246,715      $ 1,078,904      $ 995,764      $ 1,285,430   
                                       

Less:

         

Fuel

    58,026        47,338        207,210        162,683        258,262   
                                       

Net Cruise Cost Excluding Fuel

  $ 228,931      $ 199,377        871,694        833,081        1,027,168   
                                       

Capacity Days

    2,343,768        1,988,280        8,790,980        8,450,980        8,900,816   

Gross Cruise Cost per Capacity Day

  $ 176.83      $ 180.24      $ 183.34      $ 181.18      $ 211.03   

Net Cruise Cost per Capacity Day

  $ 122.43      $ 124.08      $ 122.73      $ 117.83      $ 144.42   

Net Cruise Cost Excluding Fuel per Capacity Day

  $ 97.68      $ 100.28      $ 99.16      $ 98.58      $ 115.40   

 

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Adjusted EBITDA was calculated as follows (in thousands):

 

    Three Months Ended
March  31,
    Year Ended December 31,  
    2011     2010     2010     2009     2008  

Net income (loss)

  $ (10,625   $ (16,132   $ 22,617      $ 67,233      $ (211,803

Interest, net

    47,869        35,811        173,672        114,514        149,568   

Depreciation and amortization

    46,257        37,857        170,191        152,700        162,565   

Impairment loss

    —          —          —          —          128,775   

Other (income) expense(a)

    (2,432     603        33,952        (10,373     (1,012

Legal fees and settlements(b)

    —          —          —          1,500        12,723   

Severance costs(c)

    —          —          —          —          10,840   

NCLA shutdown costs(d)

    —          —          —          —          14,119   

Norwegian Sky start-up expenses(e)

    —          —          —          —          8,504   

Consulting fees(f)

    —          —          —          —          8,378   

Other(g)

    792        1,386        4,313        6,959        3,293   
                                       

Adjusted EBITDA

  $ 81,861      $ 59,525      $ 404,745      $ 332,533      $ 285,950   
                                       

 

  (a) Includes taxes, (gains)/losses on foreign currency, debt translation and derivatives and other (income) expense.
  (b) Includes a claim related to the S.S. Norway incident in 2003 and legal fees for credit facility amendments and the cancellation of a newbuild ship order.
  (c) Costs related to a severance agreement with our former Chief Executive Officer.
  (d) Costs in connection with the Hawaii restructuring, which were reimbursed by Genting HK pursuant to the RDA (we refer you to “Certain Relationships and Related Party Transactions—The Reimbursement and Distribution Agreement”).
  (e) Costs incurred from the reflagging of Pride of Aloha from the U.S.-flagged fleet to the international fleet as Norwegian Sky.
  (f) Fees associated with the acquisition of our ordinary shares by the Apollo Funds.
  (g) Includes non-cash compensation and costs related to our Shipboard Retirement Plan in 2011 and 2010. Includes insurance claim recoveries and supplemental P&I insurance call, non-cash costs related to our Shipboard Retirement Plan and, beginning in 2009, management equity grants. Also includes costs related to a mechanical failure on one of our ships in 2009.

Three months ended March 31, 2011 (“2011”) compared to three months ended March 31, 2010 (“2010”)

Revenue

Total revenue increased 19.0% in 2011 compared to 2010. Net Revenue increased 20.7% in 2011, primarily due to an increase in Capacity Days of 17.9% and an increase in Net Yield of 2.4%. The increase in Capacity Days was due to the addition of Norwegian Epic to the fleet in late June 2010. The increase in Net Yield was due to an increase in passenger ticket pricing and onboard revenue. The increase in onboard revenue was primarily due to an increase in net revenue from our gaming operations.

Expense

Total cruise operating expense increased 17.0% in 2011 compared to 2010 primarily related to an increase in Capacity Days as described above and higher ship operating expenses. The increase in ship operating expenses was primarily due to an increase in fuel expense as a result of a 6.6% increase in average fuel price to $520 per metric ton in 2011 from $488 per metric ton in 2010. Total other operating expense increased 14.1% compared to 2010 due to an increase in depreciation expense related to Norwegian Epic which entered service in late June 2010 as well as an increase in marketing expenses. Net Cruise Cost increased 16.3% in 2011 primarily due to an

 

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increase in Capacity Days. Net Cruise Cost per Capacity Day decreased 1.3% primarily due to decreases in general and administrative expense, payroll expense and repair and maintenance expense on a Capacity Day basis partially offset by an increase in fuel expense and food expense on a Capacity Day basis.

Interest expense, net of capitalized interest, increased to $47.9 million in 2011 from $35.8 million in 2010 primarily due to an increase in average outstanding borrowings related to the financing of Norwegian Epic. Other income (expense) was $2.4 million in 2011 compared to $(0.6) million in 2010. The income in 2011 was primarily due to gains on fuel derivatives.

Year ended December 31, 2010 compared to year ended December 31, 2009

Revenue

Total revenue increased 8.5% in 2010 compared to 2009. Net Revenue increased 12.1% in 2010, primarily due to an increase in Net Yield of 7.7% and an increase in Capacity Days of 4.0%. The increase in Net Yield was due to an increase in passenger ticket pricing and onboard revenue. The increase in onboard revenue was primarily due to an increase in net revenue from our gaming operations, beverage sales and specialty dining. The increase in Capacity Days was due to the addition of Norwegian Epic to the fleet in late June 2010, partially offset by the departure of Norwegian Majesty from our fleet in October 2009.

Expense

Total cruise operating expense increased 4.5% in 2010 compared to 2009 primarily related to an increase in Capacity Days as described above and higher ship operating expenses. The increase in ship operating expenses is primarily due to an increase in fuel expense resulting from a 28.3% increase in the average cost of $490 per metric ton in 2010 from $382 per metric ton in 2009 as well as an increase in payroll and related expenses, partially offset by a savings in port charge expenses. Total other operating expense increased 10.2% compared to 2009 with an increase in marketing expenses, including inaugural expenses for Norwegian Epic, partially offset by lower expenses associated with cost control initiatives. Net Cruise Cost increased 8.3% in 2010 compared to 2009. Net Cruise Cost per Capacity Day increased 4.2% primarily due to higher fuel expense per Capacity Day. Depreciation and amortization expense increased 11.5% in 2010 compared to 2009 due to depreciation expense related to Norwegian Epic which entered service in late June 2010.

Interest expense, net of capitalized interest, increased to $173.8 million in 2010 from $115.4 million in 2009 primarily due to higher average interest rates and an increase in average outstanding borrowings related to the financing of Norwegian Epic. Other income (expense) was an expense of $(34.0) million in 2010 compared to income of $10.4 million in 2009. The expense in 2010 was primarily due to losses on foreign exchange contracts associated with the financing of Norwegian Epic. The income in 2009 was primarily due to fuel derivative gains of $20.4 million, partially offset by interest rate swap losses of $5.5 million and foreign currency losses of $4.0 million, primarily due to changes in the exchange rate regarding the revaluation of our euro-denominated debt to U.S. dollars.

Year ended December 31, 2009 compared to year ended December 31, 2008

Revenue

Total revenue decreased 11.9% in 2009 compared to 2008. Net Revenue decreased 12.8% in 2009 compared to 2008 due to a decrease in Net Yield of 8.2% and a decrease in Capacity Days of 5.1%. The decrease in Net Yield was the result of a decrease in passenger ticket pricing due to adverse global economic conditions. This decrease was partially offset by a slight increase in Net Yield pertaining to onboard and other revenue primarily due to increased Net Revenue from our shore excursions and gaming operations and an increase in Occupancy Percentage. The decrease in Capacity Days was the result of the departure of Marco Polo, Norwegian Dream and Norwegian Majesty from our fleet upon expiration of the relevant Charter agreements in March 2008, November 2008, and October 2009 respectively, partially offset with the re-flagging of Pride of Aloha which was withdrawn from the fleet in May 2008 and launched as Norwegian Sky in July 2008.

 

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Expense

Total cruise operating expense decreased 18.3% in 2009 compared to 2008 primarily related to a decrease in fuel price as a result of a 30.3% decrease in the average cost of $382 per metric ton in 2009 from $548 per metric ton in 2008 and implementation of cost control initiatives which included savings in marketing, general and administrative expense. Total other operating expense decreased 33.3% in 2009 compared to 2008 primarily due to an impairment loss in 2008 of $128.8 million as a result of the cancellation of a contract to build a ship. Net Cruise Cost decreased 22.5% in 2009 compared to 2008 primarily due to a 18.4% decrease in Net Cruise Cost per Capacity Day. The decrease in Net Cruise Cost per Capacity Day was primarily due to lower fuel expense per Capacity Day; lower marketing, general and administrative expense and other cruise operating expense per Capacity Day; and lower payroll and related expense per Capacity Day from the impact of the re-flagging and redeployment of Pride of Hawai’i and Pride of Aloha from the Hawaii market to our international fleet in 2008. Depreciation and amortization expense decreased 6.1% in 2009 compared to 2008 primarily due to the transfer of Norwegian Sky to Genting HK in January 2009.

Interest expense, net of capitalized interest, decreased to $115.4 million in 2009 from $152.4 million in 2008, primarily due to lower average interest rates. Other income (expense) improved to income of $10.4 million in 2009 compared to $1.0 million in 2008. The income in 2009 was primarily due to fuel derivative gains of $20.4 million partially offset by interest rate swap losses of $5.5 million and foreign currency losses of $4.0 million, primarily due to changes in the exchange rate regarding the revaluation of our euro-denominated debt to U.S. dollars. The income in 2008 was primarily due to foreign currency gains of $101.8 million partially offset by fuel derivative losses of $99.9 million.

Liquidity and Capital Resources

General

As of March 31, 2011, our liquidity was $567.3 million consisting of $49.2 million in cash and cash equivalents and $518.1 million available under our $750.0 million senior secured revolving credit facility. Our main ongoing liquidity requirements are to finance working capital, capital expenditures, and debt service.

Sources and Uses of Cash

In this section, references to 2011 refer to the three months ended March 31, 2011 and references to 2010 refer to the three months ended March 31, 2010.

Net cash provided by operating activities was $136.3 million in 2011 and $133.5 million in 2010, primarily due to timing differences in cash payments relating to operating assets and liabilities and an increase in advance ticket sales.

Net cash used in investing activities in 2011 was $19.9 million primarily consisting of additions to property and equipment in connection with construction of two ships, ship improvements and shoreside projects, and $26.5 million in 2010, which primarily consisted of additions to property and equipment in connection with construction of Norwegian Epic.

Net cash used in financing activities was $122.2 million in 2011 and $66.6 million in 2010 primarily due to repayments of our revolving credit facility.

Capitalized interest in 2011 was $4.9 million associated with the construction of two ships and in 2010 was $4.6 million due to the construction of Norwegian Epic.

Future Capital Commitments

Future capital commitments consist of contracted commitments, including ship purchase commitments, and future expected capital expenditures necessary for operations. As of March 31, 2011, anticipated capital expenditures are $185.6 million, $244.1 million and $874.3 million for the years ending December 31, 2011,

 

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2012 and 2013, respectively, of which we have export credit financing in place for the expenditures related to ship purchase commitments in the amounts of $87.1 million, $130.6 million and $684.4 million, respectively, based on the euro/U.S. dollar exchange rate as of March 31, 2011.

The two ships, each at 143,500 Gross Tons and capacity of approximately 4,000 Berths, are scheduled for delivery in the second quarter of 2013 and 2014, respectively. The aggregate contract price of the two ships is approximately €1.2 billion, or $1.7 billion based on the euro/U.S. dollar exchange rate as of March 31, 2011. In connection with the contracts to build the two ships, we do not anticipate any contractual breaches or cancellation to occur. However, if any were to occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.

Contractual obligations

As of December 31, 2010, 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)

   $ 3,193,286       $ 72,405       $ 406,324       $ 777,255       $ 1,937,302   

Capital leases(2)

     10,799         5,832         4,780         187         —     

Operating leases(3)

     50,890         7,329         12,548         11,068         19,945   

Ship purchases(4)

     1,565,780         82,312         824,046         659,422         —     

Port facilities(5)

     154,758         22,330         37,917         41,274         53,237   

Interest(6)

     955,013         155,317         302,313         271,724         225,659   

Other(7)

     79,433         45,964         31,259         2,210         —     
                                            

Total

   $ 6,009,959       $ 391,489       $ 1,619,187       $ 1,763,140       $ 2,236,143   
                                            

 

(1) Net of unamortized original issue discount of $4.7 million.
(2) Primarily for Hawaiian bus operations and equipment for Norwegian Epic.
(3) Primarily for offices, motor vehicles and office equipment.
(4) Contractual obligations for two ships, based on the euro/U.S. dollar exchange rate of 1.3384 as of December 31, 2010. Financing commitments are in place from a syndicate of banks for export credit financing.
(5) Primarily for our usage of a New York City cruise Terminal and Islas de la Bahia, Bermuda and Miami port facilities.
(6) Interest includes fixed and variable rates with LIBOR held constant as of December 31, 2010.
(7) Future commitments for service and maintenance contracts and a Charter agreement with an Affiliate.

Contractual Obligations

As of March 31, 2011, 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)

   $ 3,072,668       $ 83,960       $ 410,738       $ 677,978       $ 1,899,992   

Capital leases(2)

     9,162         5,070         4,092         —           —     

Operating leases(3)

     49,348         7,092         12,663         10,877         18,716   

Ship purchases(4)

     1,668,110         87,072         877,591         703,447         —     

Port facilities(5)

     151,955         23,408         38,681         42,015         47,851   

Interest(6)

     930,947         150,795         293,442         263,059         223,651   

Other(7)

     68,147         39,921         26,588         1,638         —     
                                            

Total

   $ 5,950,337       $ 397,318       $ 1,663,795       $ 1,699,014       $ 2,190,210   
                                            

 

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(1) Net of unamortized original issue discount of $4.5 million.
(2) Primarily for Hawaiian bus operations and equipment for Norwegian Epic.
(3) Primarily for offices, motor vehicles and office equipment.
(4) Contractual obligations for two ships, based on the euro/U.S. dollar exchange rate of 1.4158 as of March 31, 2011. Financing commitments are in place from a syndicate of banks for export credit financing.
(5) Primarily for our usage of a New York City cruise Terminal and Islas de la Bahia, Bermuda, New Orleans and Miami port facilities.
(6) Interest includes fixed and variable rates with LIBOR held constant as of March 31, 2011.
(7) Future commitments for service and maintenance contracts and a Charter agreement with an Affiliate.

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. During the year ended December 31, 2010, our service providers released in aggregate $89.3 million of collateral which was included in other long-term assets in our consolidated balance sheet as of December 31, 2009.

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

Certain of our debt agreements contain covenants that, among other things, require us to maintain minimum liquidity of at least $50 million, an EBITDA-to-debt service ratio of at least 1.25x or minimum liquidity of at least $100 million, and limit our net funded debt-to-capital ratio to no more than 0.70x, as well as maintain certain other ratios and restrict our ability to pay dividends. Our liquidity is calculated by adding our aggregate cash balances and amounts available for drawing for general purposes and which would not, if drawn, be repayable within six months. Our EBITDA-to-debt service ratio is calculated by dividing EBITDA (which is calculated pursuant to the loan agreements) for the past four quarters by the sum of dividends, rent payments on capital leases, interest expense and principal payable on our debt facilities (other than certain prepayments). We were in compliance with these covenants as of March 31, 2011. The specific covenants and related definitions can be found in the applicable debt agreements, which have been previously filed with the Securities and Exchange Commission.

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, including capital contributions, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next twelve-month period. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations.

Qualitative and quantitative disclosures about market risk

General

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 derivative financial instruments. The financial impacts of these hedging

 

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instruments are primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the amount, term and conditions of the derivative instrument with the underlying risk being hedged. We do not hold or issue derivative financial instruments for trading or other speculative purposes. Derivative positions are monitored using techniques including market valuations and sensitivity analyses. We refer you to our consolidated financial statements, Note 6 “Financial Instruments.”

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 March 31, 2011, 35% of our debt was fixed and 65% was variable. Based on our March 31, 2011 outstanding variable rate debt balance, a one percentage point increase in annual LIBOR interest rates would increase our annual interest expense by approximately $20 million excluding the effects of capitalization of interest.

Foreign currency exchange rate risk

We are exposed to foreign currency exchange rate fluctuations on the U.S. dollar value of our foreign currency denominated forecasted transactions. Our primary exposure to foreign currency exchange rate risk relates to our ship construction firm commitments denominated in euros. We enter into foreign currency forward contracts and/or option contracts to manage the risk related to our ship construction firm commitments.

As of March 31, 2011, we had call options with deferred premiums which resulted in a net asset of $2.3 million. These options hedge the foreign currency exchange rate risk on a portion of the final payments on our ship construction firm commitments. 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 options. As of March 31, 2011, the remaining payments aggregating €1,028 million, or $1,456 million based on the euro/U.S. dollar exchange rate as of March 31, 2011, are not hedged. We estimate that a 10% change in the euro as of March 31, 2010, would result in a $146 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 consumption of fuel on our ships. Fuel expense, as a percentage of our total cruise operating expense, was 16.9% and 16.1% for the three months ended March 31, 2011 and 2010, respectively. From time to time, we use fuel hedging agreements to mitigate the financial impact of fluctuations in fuel prices. As of March 31, 2011, we had hedged approximately 57% of our remaining 2011 projected fuel consumption. We estimate that a 10% increase in our weighted-average fuel price would increase our anticipated 2011 fuel expense by $20.8 million. This increase would be partially offset by an increase in the fair value of our fuel swap agreements of $10.0 million.

Fair value for 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, exchange rates, creditworthiness of the counterparty and the Company, as well as other data points (we refer you to our consolidated financial statements, Note 6 “Financial Instruments”).

Off-balance sheet transactions

None.

 

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BUSINESS

Our Company

The Norwegian Cruise Line brand commenced operations out of Miami in 1966.

We are a leading global cruise line operator, offering cruise experiences for travelers with a wide variety of itineraries in North America (including Alaska and Hawaii), the Mediterranean, the Baltic, Central America, Bermuda and the Caribbean. We strive to offer an innovative and differentiated cruise vacation with the goal of providing our customers the highest levels of overall satisfaction on their cruise experience. In turn, we aim to generate the highest customer loyalty and greatest numbers of repeat customers. We created a distinctive style of cruising called “Freestyle Cruising” onboard all of our ships, which we believe provides our passengers with the freedom and flexibility associated with a resort style atmosphere and experience as well as more dining options than a traditional cruise. We established the very first private island developed by a cruise line in the Bahamas with a diverse offering of activities for passengers. After enactment of federal legislation we are the only cruise line operator to offer an entirely inter-island itinerary in Hawaii with our U.S.-flagged ship, Pride of America. This itinerary is unparalleled in the cruise industry, as all other competing cruise lines are registered outside the U.S. and are required to dock at a distant foreign port when providing their customers with a Hawaiian-based cruise itinerary. By providing such a distinctive experience and appealing combination of value and service, we straddle both the contemporary and premium segments. As a result, we have been recognized for our achievements as the recipient of multiple honorary awards mainly consisting of reviews tabulated from the readers of travel periodicals such as Travel Weekly, Condé Nast Traveler, and Travel & Leisure. Our newest ship, Norwegian Epic, was awarded “Gold” in the Contemporary Ship Category as “Best Cruise Ship Overall” by Travel Weekly for the 2010 Magellan Award.

We offer a wide variety of cruises ranging from one day to three weeks. During 2010, we docked at over 125 ports worldwide, with itineraries originating from 17 ports of which 10 are in North America. In line with our strategy of innovation, many of these North American ports are part of our “Homeland Cruising” program in which we have homeports which are close to major population centers, such as New York, Boston and South Florida. This reduces the need for vacationers to fly to distant ports to embark on a cruise and helps reduce our customers’ overall vacation cost. We offer a wide selection of exotic itineraries outside of the traditional cruising markets of the Caribbean and Mexico; these include cruises in Europe, including the Mediterranean and the Baltic, Bermuda, Alaska and the industry’s only entirely inter-island itinerary in Hawaii, with our U.S.-flagged ship, Pride of America.

Our new management team has driven the Company to achieve substantial improvements in operating results and growth in revenue and cash flow generation in a challenging market environment. Since joining the Company in late 2007, our President and Chief Executive Officer, Kevin M. Sheehan, has led a successful turnaround of the Company including overseeing major initiatives such as improving onboard service and amenities across the fleet, expanding the line’s European presence and repositioning two of the line’s Hawaii-based ships, which had a significant impact on the profitability of the business. In addition, we recently appointed Wendy A. Beck as our new Executive Vice President and Chief Financial Officer and augmented our senior management team with five new Senior Vice Presidents in the areas of Sales, Marketing, Hotel Operations and Finance.

We have also successfully restructured our sales organization to provide better coverage of the travel agent community and to capture a greater percentage of direct sales to customers. Through these changes and other initiatives, we have strengthened our brand and significantly enhanced our product offering, reduced operating costs and improved both our sales network and our relationships with our travel agent partners. These organization-wide improvements have enabled us to bolster our brand, attracting and retaining our most loyal and profitable customers and maximizing revenue and profit.

Our fleet of eleven modern ships has been purpose-built to deliver “Freestyle Cruising,” which we believe provides us with a competitive advantage given our consistent “Freestyle Cruising” product offering. By focusing

 

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on “Freestyle Cruising,” we have been able to achieve higher onboard spend levels, greater customer loyalty and the ability to attract a more diverse clientele. At the end of June 2010, we took delivery of our largest cruise ship, Norwegian Epic (4,100 Berths), which represents the next evolution of “Freestyle Cruising,” offering 21 dining options and what we believe to be the widest array of entertainment options at sea. As of March 31, 2011, we have the youngest fleet of cruise ships in the industry among the Major North American Cruise Brands, with a weighted-average age of 6.4 years.

As a result of our positive operating performance over the last three years, the successful launch of Norwegian Epic, the growing demand we see for our distinctive cruise offering, and the rational supply outlook for the industry, we believe that it is an optimal time for the Company to add two new ships to our fleet, in order to continue to grow the Norwegian brand and drive shareholder value. In September 2010, we reached an agreement with Meyer Werft GmbH of Germany to build two new cruise ships for delivery in the second quarter of 2013 and 2014, respectively. Building on the success of Norwegian Epic, we have designed these two new next-generation “Freestyle Cruising” ships to include some of the most popular elements of our recently delivered ships together with new and differentiated features. We have entered into financing arrangements for approximately 90% of the contract price of the two ships. Each ship will approximate 143,500 Gross Tons and 4,000 Berths with an aggregate contract price of the two ships of approximately €1.2 billion, or $1.7 billion, based on the euro/U.S. dollar exchange rate as of March 31, 2011. This is approximately €155,000 per Berth, or $219,000 per Berth based on the euro/U.S. dollar exchange rate as of March 31, 2011.

In January 2008, the Apollo Funds and the TPG Viking Funds acquired 50% of our Company. As part of this investment, the Apollo Funds obtained control of our Board of Directors. The remaining 50% of the Company is owned by Genting HK, a leading Asian cruise and gaming operator.

For the twelve months ended March 31, 2011, we generated total revenue of $2,091.1 million, Net Revenue of $1,542.5 million, net income of $28.1 million and Adjusted EBITDA of $427.1 million representing an Adjusted EBITDA margin of 20.4%. For the three months ended March 31, 2011, we generated total revenue of $495.5 million, Net Revenue of $368.0 million, net loss of $10.6 million, Adjusted EBITDA of $81.9 million and an Adjusted EBITDA margin of 16.5%. For the three months ended March 31, 2010, we generated total revenue of $416.5 million, Net Revenue of $304.9 million, net loss of $16.1 million, Adjusted EBITDA of $59.5 million and an Adjusted EBITDA margin of 14.3%. This represents an increase of 220 basis points in period over period Adjusted EBITDA margin as a result of improved ticket pricing and onboard spending coupled with various business improvement, product enhancement and cost reduction initiatives. We refer you to note 6 to our “Summary Consolidated Financial Data” included elsewhere in this prospectus for a reconciliation of Adjusted EBITDA to net income (loss).

Our operating entities have been aggregated as a single reportable segment based on the similarity of their economic characteristics, as well as products and services provided.

Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to passengers who make reservations in North America. For each of the years ended December 31, 2010, 2009 and 2008, revenues attributable to North American passengers were 83%. Substantially all of our long-lived assets are located outside of the U.S. and consist primarily of our ships.

Our Industry

We believe that the cruise industry demonstrates the following positive fundamentals:

Strong Growth with Low Penetration and Significant Upside

Cruising is a vacation alternative with broad appeal, as it offers a wide range of products and services to suit the preferences of vacationing customers of all ages, backgrounds and interests. Since 1980, cruising has been one of the fastest growing segments of the North American vacation market. According to CLIA, in 2010 approximately 15 million passengers took cruises of two consecutive nights or more on CLIA member lines versus 7.2 million passengers in 2000, representing a compound annual growth rate of approximately 8%. Based

 

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on CLIA’s research, we believe that cruising is under-penetrated and represents approximately 10% of the North American vacation market. As measured in Berths or room count, the cruise industry is relatively nascent as compared to the wide variety of much more established vacation travel destinations across North America.

According to the Orlando/Orange County Convention & Visitors Bureau and the Las Vegas Convention and Visitors Authority, there are approximately 274,000 rooms in just Orlando and Las Vegas combined. By comparison, the estimated Major North American Cruise Brands’ capacity in terms of Berths is only approximately 224,000. In addition, according to industry research, only 20% of the U.S. population has ever taken a cruise and we believe this percentage should increase. The European vacation market, the fastest growing market globally, remains under-penetrated by the cruise industry, with approximately 1% of Europeans having taken a cruise in 2008, compared with 3.1% of the population in the U.S. and Canada having taken a cruise in 2008.

We believe that improving leisure travel trends along with a relatively low supply outlook in the near term from the Major North American Cruise Brands lead to an attractive business environment for our Company to operate in.

Attractive Demographic Trends to Drive Cruising Growth

The cruise market is comprised of a broad spectrum of customers and appeals to virtually all demographic categories. Based on CLIA’s 2008 study, the target North American cruise market, defined as households with income of $40,000 or more headed by a person who is at least 25 years old, is estimated to be 128.6 million people. Also according to the study, the average cruise customer is 50 years old with a household income of $109,000, with 70% of all cruise customers falling between the ages of 40 to 74. We believe this represents a very attractive segment of the population as the Brookings Institution recently reported that over the past decade the 55 to 64 age group was the fastest growing age group in the U.S. It is our belief that “Freestyle Cruising” will help us attract customers not only in the lucrative older population segment of North America, but also with younger generations, as well as Europeans, who we believe are more likely to enjoy greater levels of freedom during their cruise through the “Freestyle Cruising” product offering than was traditionally offered within the cruise industry.

Significant Value Proposition and High Level of Guest Satisfaction

We believe that the cost of a cruise vacation, relative to a comparable land-based resort or hotel vacation in Orlando or Las Vegas, offers an exceptional value proposition. When one considers that a typical cruise, for one all-inclusive price, offers its guests transportation to a variety of destinations, hotel-style accommodations, a generous diversity of food choices and a selection of daily entertainment options, this is compelling support for the cruise value proposition relative to other leisure alternatives. Cruises have become even more affordable for a greater number of North American customers over the past few years through the introduction of “Homeland Cruising”, which eliminates the cost of airfare commonly associated with a vacation.

According to CLIA’s 2008 study, approximately 70% of persons who have taken a cruise rate cruising as a high-value vacation alternative. In this same survey, CLIA reported that approximately 80% of cruise passengers agree that a cruise vacation is a good way to sample various destinations which they may visit again on a land-based vacation. In addition, CLIA’s surveys also show that cruise passengers have the highest level of satisfaction when compared to alternative land-based vacations like resorts and land-based escorted tours.

High Barriers to Entry

The cruise industry is characterized by high barriers to entry, including the existence of several established and recognizable brands, the large expense of building a new, sophisticated cruise ship, the long lead time necessary to construct new ships and limited newbuild shipyard capacity. Based on new ships announced over the past several years, the cost to build a cruise ship can range from approximately $500 million to $1.4 billion

 

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or approximately $200,000 to $425,000 per Berth, depending on the ship’s size and quality of product offering. The construction time of a newbuild ship is typically between 27 months to 36 months and requires significant upfront cash payments to fund construction costs before a dollar of revenue is generated. In addition, the shipbuilding industry is experiencing tightened capacity as the size of ships increases and the industry consolidates, with virtually all new capacity added in the last 20 years having been built by one of three major European shipbuilders.

Segments and Brands

The different cruise lines that make up the global cruise vacation industry have historically been segmented by product offering and service quality into contemporary, premium and luxury brands. The contemporary segment generally includes cruises on larger ships that last seven days or less, provides a casual ambiance and is less expensive on average than the premium or luxury segments. The premium segment is generally characterized by cruises that last from seven to 14 nights with a higher quality product offering than the contemporary segment, appealing to a more affluent demographic. The luxury segment generally offers the highest level of service and quality, with longer cruises on the smallest ships. In classifying our competitors within the Major North American Cruise Brands, the contemporary segment has historically included Carnival Cruise Lines and Royal Caribbean International. The premium segment has historically included Celebrity Cruises, Holland America and Princess Cruises. By providing a diverse set of itineraries and a “Freestyle Cruising” experience, we believe that we straddle both the contemporary and premium segments as well as offer a unique combination of value and leisure services to cruise customers. Based on fleet counts as of December 31, 2010, the Major North American Cruise Brands together represent approximately 90% of the North American cruise market as measured by total Berths.

Our Competitive Strengths

We believe that the following business strengths will enable us to execute our strategy:

Leading Cruise Operator with High-Quality Product Offering

We believe that our modern fleet provides us with operational and strategic advantages as our entire fleet has been purpose-built for “Freestyle Cruising” with a wider range of passenger amenities relative to many of our competitors.

We believe that in recent years the distinction has been blurred between segments of the market historically known as “premium” and “contemporary,” with the Major North American Cruise Brands each offering a wide range of onboard experiences across their respective fleets. With the completion of our fleet renewal initiative, we believe that based on a number of different metrics that directly impact a passenger’s onboard experience, we compare favorably against the other Major North American Cruise Brands, with product attributes more in line with the premium segment.

 

   

Youngest Fleet. With a weighted-average age of 6.4 years (as of March 31, 2011) and no ships built before 1998, we have the youngest fleet among the Major North American Cruise Brands, which we believe allows us to offer a high-quality passenger experience with a significant level of consistency across our entire fleet. As a result of our younger fleet, we have a substantially higher percentage of outside balcony cabins across our fleet than the other contemporary brands, which helps drive higher Net Yields.

 

   

Rich Cabin Mix. As of March 31, 2011, 48% of our cabins had private balconies representing a higher mix of outside balcony cabins than the other contemporary brands. In addition, five of our ships offer a complex of private courtyard villas of up to approximately 570 square feet each. Customers staying in these villas are provided with personal butler service and exclusive access to a private courtyard area with private pools, sundeck, hot tubs, and fitness center. Six of our ships also offer luxury garden villas of up to 6,694 square feet, making them the largest accommodations at sea.

 

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High-Quality Service. We believe we offer a very high level of onboard service, as demonstrated by our guest-to-crew ratio of 2.2 to 1, which is among the best of all the Major North American Cruise Brands.

 

   

Diverse Selection of Premium Itineraries. For the year ended December 31, 2010, approximately 54% of our itineraries, by Capacity Days, were in more exotic, under-penetrated and less traditional locations, including Alaska, Hawaii, Bermuda and Europe, compared to the other contemporary brands which are focused primarily on itineraries in the Caribbean and Mexico. This mix of destinations is more consistent with the brands in the premium segment, and these itineraries typically attract higher Net Yields than Caribbean and Mexico sailings.

We believe that this high-quality product offering positions us well in comparison to the other Major North American Cruise Brands and provides an opportunity for continued Net Yield growth.

“Freestyle Cruising”

The most important differentiator for our brand is the “Freestyle Cruising” concept onboard all eleven of our ships. The essence of “Freestyle Cruising” is to provide a cruise experience that offers more freedom and flexibility than any other traditional cruise alternative. While many cruise lines have historically required guests to dine at assigned group tables and at specified times, “Freestyle Cruising” offers the flexibility and choice to our passengers who prefer to dine when they want, with whomever they want and without having to dress formally. Additionally, we have increased the number of activities and dining facilities available onboard, allowing passengers to tailor their onboard experience to their own schedules, desires and tastes. The key elements of “Freestyle Cruising” include:

 

   

flexible dining policy; no fixed dining times or pre-assigned seating in our dining rooms;

 

   

up to 21 dining options; in addition to multiple main dining rooms, a casual action station buffet and quick service outdoor grill, our ships offer a wide variety of specialty restaurants, with most offering a classic steakhouse, fine French, Japanese teppanyaki, sushi, Italian, Mexican and Asian fusion restaurants, which we believe is the widest selection of full-service dining options among the fleets of the Major North American Cruise Brands;

 

   

resort-casual dress code acceptable throughout the ship at all times;

 

   

increased service staff for a more personalized vacation experience;

 

   

replacement of cash tipping with an automated service charge system;

 

   

diverse “lifestyle” activities, including cultural and educational onboard programs along with an increased adventure emphasis for shore excursions; and

 

   

passenger-friendly disembarkation policies.

All of our ships have been custom designed and purpose-built for “Freestyle Cruising,” which we believe differentiates us significantly from our major competitors. We further believe that “Freestyle Cruising” attracts a passenger base that prefers the less structured, resort-style experience of our cruises. Building on the success of “Freestyle Cruising,” we implemented across our fleet “Freestyle 2.0” featuring significant enhancements to our onboard product offering. These enhancements include a major investment in the total dining experience; upgrading the stateroom experience across the ship; new wide-ranging onboard activities for all ages; and additional recognition, services and amenities for premium-priced balcony, suite and villa passengers. With Norwegian Epic we have enhanced “Freestyle Cruising” by offering what we believe to be unmatched flexibility in entertainment, offering guests a wide variety of activities and performances to choose from at any time of day or night.

 

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Established Brand Recognition

The Norwegian Cruise Line brand is well established in the cruise industry with a long track record of delivering a world class cruise product offering to its customers. We achieve high-quality feedback scores from our customers in the areas of overall service, physical ship attributes, onboard products and services, food and beverage offerings and overall entertainment and land-based excursion quality. Based on recent guest experience and loyalty reports, the quality of our guests’ experience generates high levels of customer loyalty, as demonstrated by the fact that approximately 30% of our customers are repeat customers and approximately 70% say they would recommend Norwegian Cruise Line to their friends and family.

Brand recognition is also strong with over 92% of cruisers reporting familiarity with Norwegian. Additionally, our brand is known for freedom, flexibility and choice, all highly valued benefits within the cruise industry demographic. We continue to receive industry-wide recognition, winning more than 30 honorary awards during 2008 through 2010 which are reviews tabulated from the readers of Sherman’s Travel, Condé Nast Traveler, Travel & Leisure, AOL Travel and ForbesTraveler.com. Norwegian Epic was awarded Gold in the Contemporary Ship category as “Best Cruise Ship Overall” by Travel Weekly for the 2010 Magellan Award.

Strong Cash Flow

Nearly all of our capital expenditures, other than those related to our newbuild projects (which are substantially financed) and the current renovation of our private island, relate to the maintenance of our young and modern fleet and shoreside operations, which includes investments in our IT infrastructure and business intelligence systems. Our newbuild projects include very attractive financing which will fund approximately 90% of the required pre-delivery and delivery date construction payments; as such, we expect the cost of our newbuild projects to have a minimal impact on our cash flow in the near term.

We are able to generate significant levels of cash flow due to our ability to pre-sell tickets and receive customer deposits with long lead times ahead of sailing. Our debt financing is relatively low cost, with a weighted-average interest rate cost of 6.30% as of March 31, 2011. In addition, we believe that the favorable U.S. federal income tax regime applicable to international shipping income will enhance our cash flow from operations that can be utilized to significantly de-lever our balance sheet over time.

Highly Experienced Management Team

Our senior management team is comprised of experienced executives with an average of 14.6 years in the cruise, travel, leisure and hospitality-related industries. Since the Apollo Funds’ and the TPG Viking Funds’ investment in January 2008, 28 of the top 37 members of our senior management team (including 12 of the top 14) have been newly recruited or promoted to their current position under the leadership of our President and Chief Executive Officer, Kevin M. Sheehan. Their combined experience in related hospitality industries coupled with their financial expertise is a significant contributor to improving the operating and financial performance of our Company.

Strong and Experienced Shareholders

Our shareholders or their affiliates have extensive experience investing in the cruise, leisure and travel-related industries. Affiliates of the Apollo Funds have invested significant equity and resources to the cruise and leisure industry with its investment in Prestige Cruise Holdings, Inc. which operates through two distinct upscale cruise brands, Oceania Cruises and Regent Seven Seas Cruises. In addition, affiliates of both Apollo and TPG Capital own Caesars Entertainment, with whom we have created a marketing alliance. Affiliates of TPG Capital are also significant investors in Sabre Holdings, a leading GDS (global distribution system) and parent of Travelocity.com. Genting HK, headquartered in Hong Kong, operates a leading Asian cruise line with destinations in Malaysia, Singapore, Hong Kong, Taiwan and Japan.

 

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Our Business Strategies

We seek to attract vacationers by offering new products and services and creating differentiated itineraries in new markets through new and existing modern ships with the aim of delivering a better, value-added, vacation experience to our customers relative to other broad-based or land-based leisure alternatives.

Attractive Product Offerings

We have a long history of product development within the cruise industry as one of the most established consumer brands. We became the first cruise operator to buy a private island in the Bahamas to offer a private beach experience to our passengers; and we were the first to introduce a 2,000-Berth megaship into the Caribbean market in 1980. More recently, we pioneered new concepts in cruising over the last decade with the development of “Homeland Cruising” and the launch of “Freestyle Cruising.”

We continue to enhance our product offerings with the delivery of Norwegian Epic in June 2010, which offers 21 dining options, a diverse range of accommodations and what we believe is the widest array of entertainment at sea. In addition to several differentiated full-service complimentary dining rooms, Norwegian Epic also features specialty restaurants including a classic steakhouse, sushi, Japanese teppanyaki, Brazilian churrascaria, Asian noodle bar, traditional Chinese, fine French and Italian restaurants. Guest accommodations on Norwegian Epic include the groundbreaking Studios, 128 cabins designed for solo travelers centered around the Studio Lounge, a private two-story lounge for studio guests. On its top decks, Norwegian Epic offers a “ship within a ship” in the largest suite complex at sea; the exclusive Villas compound includes two decks with 52 villas and penthouses, a private pool with multiple hot tubs and sundecks, a private fitness center and steam rooms, fine dining in the Epic Club restaurant, casual outdoor dining at the Courtyard Grill, and 24-hour concierge service, all exclusively for villa and penthouse guests. Entertainment onboard Norwegian Epic includes a wide variety of branded entertainment for guests to choose from, including exclusive engagements with Blue Man Group, Cirque Dreams & Dinner, Legends in Concert, Nickelodeon and the improvisational comedy troupe, The Second City.

Building on the success of Norwegian Epic, we are drawing on our legacy of new product development to create two new next-generation “Freestyle Cruising” ships, scheduled for delivery in the second quarter of 2013 and 2014, respectively. These 4,000 Berth ships will include many of the most popular elements of Norwegian Epic and the rest of our fleet together with new groundbreaking features, while keeping the consistent innovative spirit of “Freestyle Cruising” in the core of the design.

Maximize Net Yields

We are focused on growing our revenue through various initiatives aimed at increasing our ticket prices and occupancy as well as onboard spending to drive higher overall Net Yields. To maximize passenger ticket revenue, our revenue management strategy is focused on optimizing pricing and generating demand throughout the booking curve. We base-load our capacity by booking passengers as early before sailing as possible and through methods outside of traditional sales channels, allowing our sales force to focus its efforts on more targeted business objectives.

 

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Base-loading is a strategy by which we focus on selling inventory further from the cruise departure date by targeting sales and marketing tactics, such as full ship Charters and corporate meetings which generate business with longer booking windows. Our base-loading strategy also includes strategic relationships with travel agencies and international tour operators, who commit to purchasing a certain level of inventory with long lead times. Through base-loading, we believe we will increase our Net Yields by filling our ships earlier, rather than discounting close to sailing dates in order to achieve our targeted Load Factors. Our specific initiatives to achieve this include:

 

   

Casino Player Strategy. As part of this strategy, we have non-exclusive arrangements with approximately 90 casino partners worldwide including Caesars Entertainment, which is owned by affiliates of both Apollo and TPG Capital, whereby loyal gaming customers are offered cruise reward certificates redeemable for cruises on our ships. Through property sponsored events and joint marketing programs, we have the opportunity to market cruises to Caesars Entertainment’s customers. These arrangements with our casino partners have the dual benefit of filling open inventory and reaching customers expected to generate above average onboard revenue through the casino and other onboard spending.

 

   

Strategic Relationships. Our base-loading strategy also includes strategic relationships with travel agencies and international tour operators, who commit to purchasing a certain level of inventory with long lead times.

 

   

CM&I Sales. We are increasing our focus on driving additional business through the CM&I channel, which typically books very far in advance and can represent a significant portion of the ship, or even an entire sailing, in one transaction.

 

   

PROS Yield Management System. In late 2009, we implemented the PROS yield management system which allows us to better analyze and maximize our overall pricing decisions.

We continue to focus on various initiatives to drive increased onboard revenue across a variety of areas. From the year ended December 31, 2007 to the twelve months ended March 31, 2011, our net onboard and other revenue yield increased by approximately 24% from $42.86 to $53.29 primarily due to strong performance in casino, beverage sales, specialty dining and shore excursions. Our strategy for further driving increased onboard revenue includes, among other things, generating additional casino revenue through our arrangements with our casino partners, including Caesars Entertainment and Genting HK. These arrangements incorporate marketing resources to deliver cross-company advertising and marketing campaigns to promote our brand. We also focus on optimizing the utilization of our specialty restaurants that carry a cover charge, pre-booking and pre-selling additional onboard activities and encouraging our staff to offer our passengers additional revenue generating products and services. In addition, the delivery of Norwegian Epic has created additional onboard revenue opportunities through ticket sales and merchandising, based on our unique and premium entertainment offerings.

Brand Expansion Through Disciplined Newbuild Program

In September 2010, we reached an agreement with Meyer Werft GmbH of Papenburg, Germany to build two new cruise ships with financing commitments in place from a syndicate of banks for export credit financing. The new ships are scheduled for delivery in the second quarter of 2013 and 2014, respectively. Building on the success of Norwegian Epic, we have designed these two new next-generation “Freestyle Cruising” ships to include some of the most popular elements of our most recently delivered ships together with new and differentiated features, consistent with Norwegian Cruise Line’s legacy of new product development in the cruise industry. We believe that these ships will allow us to continue to expand the reach of our brand while driving shareholder value. Our financing arrangements provide for financing for approximately 90% of the contract price of the two ships. Each ship will approximate 143,500 Gross Tons and 4,000 Berths with an aggregate contract price of approximately €1.2 billion, or $1.7 billion based on the euro/U.S. dollar exchange rate as of March 31, 2011. This is approximately €155,000 per Berth, or $219,000 per Berth based on the euro/U.S. dollar exchange rate as of March 31, 2011, which we believe compares favorably against other recent newbuild ship orders in the industry.

 

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Improve Operating Efficiency and Lower Costs

We are continually focused on driving financial improvement through a variety of cost savings initiatives. These initiatives are focused on reducing costs while at the same time improving the overall product we deliver to our customers. Since the beginning of 2008, we have significantly reduced our operating cost base through various programs including contract renegotiations, overhead rationalization, and fuel consumption reduction initiatives. We also typically hedge a majority of our near term fuel consumption in order to provide greater visibility of our fuel expense; as of March 31, 2011, we had hedged approximately 57% of our remaining 2011 projected fuel consumption. We have also reduced our maintenance expense as a result of our fleet renewal program, as younger, more modern ships are typically less costly to maintain than older ships. Beginning in early 2008, we reduced our capacity in the Hawaii market, re-flagging and relocating two of three ships, which significantly reduced crew payroll expenses aboard those ships creating substantial margin expansion. In addition, we expect the economies of scale from our two newbuild ships to drive further operating efficiencies over the long term.

Expand and Strengthen Our Product Distribution Channels

As part of our growth strategy, we are continually looking for ways to deepen and expand our customer sales channels. We restructured our sales and marketing organization, which included the hiring of two Senior Vice Presidents and five Vice Presidents, to provide better focus on distribution through four primary channels: retail/travel agent, direct, international, and CM&I.

 

   

Retail/Travel Agent. We have implemented close to 100 individual projects specifically designed to improve our efficiency with the travel agency channels and our guests, ranging from more timely commission payments to aggressive call center quality monitoring. We also restructured our travel agent sales force, allowing us to more effectively support the larger accounts, which represent approximately 50% of our customers, with specific expertise and also gain access to a significantly larger number of travel partners through an outbound call center based in our Miami headquarters. We believe that our travel agent partners have witnessed a material improvement in our business practices and overall communication since the arrival of our new management team.

 

   

Direct. We continue to grow our direct business through investments in our brand and our website as well as increasing our direct sales force. Passengers booking directly with us tend to book earlier and in premium category inventory which provides higher Net Yields.

 

   

International. We have an international sales presence, with over 145 people in Europe and representatives covering Latin America, Australia and Asia. We are primarily focused on increasing our business in the European market, which has grown significantly in recent years but remains under-penetrated. In Europe, we now offer local itineraries year-round and our “Freestyle Cruising” has been well received. We are in the process of expanding our direct sales force in Europe which will allow us to develop our direct distribution in Europe in a manner similar to our U.S. operation. In support of this European strategy, we deployed our newest and most sophisticated ship, Norwegian Epic, in Europe for an extended summer season which began in May 2011. We are forging a closer distribution partnership with Genting HK, to develop product distribution across the Asia Pacific region.

 

   

CM&I. Our CM&I business focuses on full ship Charters as well as corporate meeting and incentive travel. These sales often have very long lead times and generate a higher level of Net Yield than sales through our other channels.

Across every distribution channel we are undertaking a major effort to grow demand with a targeted sales and marketing program for our premium stateroom categories, including our balcony and other premium stateroom categories, with a particular emphasis on our suites and villa complexes, which have increased as a percentage of our total inventory as a result of our fleet renewal.

 

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Our Fleet

Our ships are purpose-built ships that enable us to provide our customers with the ultimate “Freestyle Cruising” experience. Our ships have state-of-the-art passenger amenities, including up to 21 dining options together with hundreds of private balcony cabins on each ship. As of March 31, 2011, 48% of our cabins have private balconies representing a higher mix of outside cabins than the other contemporary brands. Private balcony cabins are very popular with passengers and offer the opportunity for increased revenue by allowing us to charge a premium. Five of our ships offer a complex of private courtyard villas, each with up to approximately 570 square feet, which provide personal butler service and exclusive access to a private courtyard area with private pools, sundeck, hot tubs, and fitness center. In addition, six of our ships have luxury garden villas with up to 6,694 square feet, making them the largest accommodations at sea. These luxury garden villas offer three separate bedroom areas, spacious living and dining room areas, as well as 24-hour, on-call butler and concierge service.

Continuing our tradition of new product development and the extension of the Norwegian Cruise Line brand, we took delivery of Norwegian Epic in June 2010. Norwegian Epic offers our passengers itineraries to the western and eastern Caribbean as well as Europe. The ship offers our customers a large aqua park, sports complex, two three-lane bowling alleys and our two-story Wii™ Wall. In addition, the ship features a spa facility and fitness center with more than 31,000 square feet. There are 21 dining options on Norwegian Epic offering one of the widest choices of dining experiences among the fleets of the Major North American Cruise Brands. Exclusive entertainment is offered aboard Norwegian Epic with the addition of brand new entertainment choices including Blue Man Group, Cirque Dreams & Dinner, Legends in Concert and Nickelodeon. We offer world-class entertainment in our jazz and blues club and our comedy club features the improvisational comedy troupe, The Second City. Norwegian Epic has been very well received by the market with the strongest bookings we have ever seen for a new ship, both in terms of price and volume. This positive reception has also benefited the rest of our fleet, which experienced significant bookings due to the uplift that Norwegian Epic has created for our brand overall. We believe the premium cabin mix of Norwegian Epic will drive further increases in Net Yield.

As further described in “—Our Business Strategies—Brand Expansion Through Disciplined Newbuild Program,” building on the successful launch of Norwegian Epic, we recently announced two new ships with approximately 4,000 Berths each, scheduled for delivery in the second quarter of 2013 and 2014, respectively.

The table below provides a brief description of our ships and areas of operation based on 2011 itineraries:

 

Ship(1)

   Year Built      Berths      Gross Tons     

Primary Areas of Operation

Norwegian Epic

     2010         4,100         155,900       Caribbean and Europe

Norwegian Gem

     2007         2,400         93,500       Bahamas, Bermuda and Caribbean

Norwegian Jade

     2006         2,400         93,600       Europe

Norwegian Pearl

     2006