NORWEGIAN CRUISE LINE HOLDINGS LTD. Financial Presentation
The following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws, and should be read in conjunction with the disclosures we make concerning risks and other factors that may affect our business and operating results. You should read this information in conjunction with the consolidated financial statements and the notes thereto included in this annual report. See also "Cautionary Statement Concerning Forward-Looking Statements" immediately prior to Part I, Item 1 in this annual report. We categorize revenue from our cruise and cruise-related activities as either "passenger ticket" revenue or "onboard and other" revenue. Passenger ticket revenue and onboard and other revenue vary according to product offering, the size of the ship in operation, the length of cruises operated and the markets in which the ship operates. Our revenue is seasonal based on demand for cruises, which has historically been strongest during the Northern Hemisphere's summer months; however, our cruise voyages were completely suspended during the last nine months of 2020 due to the COVID-19 pandemic and such suspension has been extended throughMay 31, 2021 . Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, port fees and taxes and includes revenue for service charges and air and land transportation to and from the ship to the extent guests purchase these items from us. Onboard and other revenue primarily consists of revenue from casino, beverage sales, shore excursions, specialty dining, retail sales, spa services and photo services. Our onboard revenue is derived 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 advisor
? commissions, air and land transportation expenses, related credit card fees,
certain port fees and taxes and the costs associated with shore excursions and
hotel accommodations included as part of the overall cruise purchase price.
Onboard and other primarily consists of direct costs incurred in connection
? with onboard and other revenue, including casino, beverage sales and shore
excursions.
Payroll and related consists of the cost of wages and benefits for shipboard
employees and costs of certain inventory items, including food, for a third
? party that provides crew and other hotel services for certain ships. The cost
of crew repatriation, including charters, housing, testing and other costs
related to COVID-19 are also included.
? Fuel includes fuel costs, the impact of certain fuel hedges and fuel delivery
costs.
? Food consists of food costs for passengers and crew on certain ships.
? Other consists of repairs and maintenance (including Dry-dock costs), ship
insurance and other ship expenses.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance withU.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenue and expenses during the periods presented. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make these estimates and judgments. Actual results could differ materially from these estimates. We believe that the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our consolidated 51
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financial statements. These critical accounting policies, which are presented in detail in our notes to our audited consolidated financial statements, relate to liquidity, ship accounting and asset impairment.
Liquidity
We make several critical accounting estimates with respect to our liquidity.
Significant events affecting travel, including COVID-19, typically have an impact on demand for cruise vacations, with the full extent of the impact generally determined by the length of time the event influences travel decisions. We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity, and such negative impact may continue beyond the containment of the pandemic. The estimation of our future cash flow projections includes numerous assumptions that are subject to various risks and uncertainties. Upon the relaunch of cruise voyages, our principal assumptions for future cash flow projections include:
? Expected gradual phased relaunch at reduced occupancy levels;
Forecasted cash collections primarily upon completion of future voyages and the
? payment of cash refunds for any further cancellations, in accordance with the
terms of our credit card processing agreements (see Note 13 - "Commitments and
Contingencies"); and
? Expected incremental expenses for resumption of cruise voyages, including the
maintenance of and compliance with additional health and safety protocols.
Due to the unknown duration and extent of the COVID-19 pandemic, travel restrictions, bans and advisories, uncertainties around our ability to comply with governmental regulations, the potential unavailability of ports and/or destinations, voyage cancellations and timing of redeployments, and a general impact on consumer sentiment regarding cruise travel, we cannot predict when we will relaunch voyages or when our full fleet will be back in service at historical occupancy levels. Until we are able to begin our phased relaunch, our projected liquidity requirements reflect our principal assumptions surrounding ongoing operating costs during the suspension of cruise voyages, as well as liquidity requirements for financing costs and necessary capital expenditures, and our ability to implement further cash conservation strategies, including, but not limited to:
Moving our ships to minimum manning levels, which we expect would result in
? further reductions in crew payroll costs, fuel consumption, and maintenance
costs;
? Further reductions in general operating expenses; and
? Further reductions in discretionary capital expenditures including cancellation
or reduction in scope of certain Dry-docks.
We cannot make assurances that our assumptions used to estimate our liquidity
requirements may not change because we have never experienced a complete
cessation of our cruise voyages. Accordingly, the full effect of our suspension
of cruise voyages on our financial performance and financial condition cannot be
quantified at this time. We have made reasonable estimates and judgments of the
impact of COVID-19 within our financial statements and there may be material
changes to those estimates in future periods. The Company has taken and will
continue to take proactive cost reduction and cash conservation measures to
mitigate the financial and operational impacts of COVID-19, through the
reduction of capital expenditures and operating expenses, deferral of ship
milestone payments, amendments of debt agreements and capital market
transactions.
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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 weighted average useful lives of primarily 30 years after a 15%
reduction for the estimated residual value of the ship. Ship improvement costs
that we believe add value to our ships are capitalized to the ship and
depreciated over the shorter of the improvements' estimated useful lives or the
remaining useful life of the ship. When we record the retirement of a ship
component included within the ship's cost basis, we estimate the net book value
of the component being retired and remove it from the ship's cost basis. Repairs
and maintenance activities are charged to expense as incurred. We account for
Dry-dock costs under the direct expense method which requires us to expense all
Dry-dock costs as incurred.
We determine the weighted average useful lives of our ships based primarily on
our estimates of the useful lives of the ships' major component systems on the
date of acquisition, such as cabins, main diesels, main electric, superstructure
and hull. The useful lives of ship improvements are estimated based on the
economic lives of the new components. In addition, to determine the useful lives
of the ship or ship components, we consider the impact of the historical useful
lives of similar assets, manufacturer recommended lives and anticipated changes
in technological conditions. 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 judgment and are 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. In 2020, one ship had significant improvements that extended the
remaining weighted average useful life of the vessel. Accordingly, we have
updated our estimate of both its useful life and residual value based on the new
weighted average useful life of its current components. The impact of the change
in estimate is accounted on a prospective basis and is not material.
If circumstances cause us to change our assumptions in making determinations as
to whether ship improvements should be capitalized, the amounts we expense each
year as repairs and maintenance costs could increase, partially offset by a
decrease in depreciation expense. If we reduced our estimated weighted average
30-year ship service life by one year, depreciation expense for the year ended
December 31, 2020 would have increased by $19.8 million . In addition, if our
ships were estimated to have no residual value, depreciation expense for the
same period would have increased by $99.6 million . We believe our estimates for
ship accounting are reasonable and our methods are consistently applied. We
believe that depreciation expense is based on a rational and systematic method
to allocate our ships' costs to the periods that benefit from the ships' usage.
Asset Impairment
We review our long-lived assets, principally ships, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. For ship impairment analyses, the lowest level for which identifiable cash flows are largely independent of other assets and liabilities is each individual ship. 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 estimated fair value. We estimate fair value based on the best information available utilizing estimates, judgments and projections as necessary. Our estimate of fair value is generally measured by discounting expected future cash flows at discount rates commensurate with the associated risk. We evaluate goodwill and trade names for impairment onDecember 31 or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable. For our evaluation of goodwill, we use the Step 0 Test which allows us to first assess qualitative factors to determine whether it is more likely than not (i.e., more than 50%) that the estimated fair value of a reporting unit is less than its carrying value. For trade names we also provide a qualitative assessment to determine if there is any indication of impairment. 53
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In order to make this evaluation, we consider whether any of the following factors or conditions exist:
Changes in general macroeconomic conditions such as a deterioration in general
? economic conditions; limitations on accessing capital; fluctuations in foreign
exchange rates; or other developments in equity and credit markets; Changes in industry and market conditions such as a deterioration in the
environment in which an entity operates; an increased competitive environment;
? a decline in market-dependent multiples or metrics (in both absolute terms and
relative to peers); a change in the market for an entity's products or
services; or a regulatory or political development;
? Changes in cost factors that have a negative effect on earnings and cash flows;
? Decline in overall financial performance (for both actual and expected
performance);
Entity and reporting unit specific negative events such as changes in
? management, key personnel, strategy, or customers; litigation; or a change in
the composition or carrying amount of net assets; and
? Decline in share price (in both absolute terms and relative to peers).
We also may conduct a quantitative assessment comparing the estimated fair value of each reporting unit to its carrying value, including goodwill. This is called the Step 1 Test which uses discounted future cash flows and other market data to determine the estimated fair value of the reporting units. Our discounted cash flow valuation reflects our principal assumptions of 1) forecasted future operating results and growth rates, which have been prepared under multiple scenarios and are probability weighted, 2) forecasted capital expenditures for fleet growth and ship improvements and 3) a weighted average cost of capital of market participants. Historically, our Step 1 Test consisted of a combined approach using discounted future cash flows and market multiples to determine the estimated fair value of the reporting units. However, beginning with the Step 1 Test performed as ofMarch 31, 2020 as a result of triggering events, the market multiples were used solely as a corroboratory approach given the impact of COVID-19 on the current year's results, as of the valuation date, as well as prospective results including the lack of any guidance provided, which were not available for our peers. We concluded that this approach is the most representative method to estimate fair value as it utilizes expectations of long-term growth as well as current market conditions. For the trade names, we use the relief from royalty method, which uses the same forecasts and discount rates from the discounted cash flow valuation in the goodwill assessment along with a trade name royalty rate assumption.
We have concluded that our business has three reporting units. Each brand,
During the year endedDecember 31, 2020 , we recognized a goodwill impairment loss of$1.3 billion based on the impairment test performed as ofMarch 31, 2020 . See Note 4 - "Goodwill and Intangible Assets" for additional information. As ofDecember 31, 2020 , there was$98.1 million of goodwill remaining for theRegent Seven Seas reporting unit. We also recognized an impairment loss for ourOceania Cruises andRegent Seven Seas Cruises trade names in an aggregate amount of$317.0 million based on theMarch 31, 2020 impairment test, with$500.5 million remaining as ofDecember 31, 2020 . For our 2020 annual goodwill and trade name impairment evaluations, we elected to perform quantitative testing. Based on the results of the Step 1 Tests atDecember 31, 2020 , we determined there was no further impairment of goodwill because the estimated fair value of theRegent Seven Seas reporting unit substantially exceeded the carrying value. We also determined there was no impairment to our trade names. We believe that we have made reasonable estimates and judgments. However, a change in our estimated future operating cash flows may result in a decline in estimated fair value in future periods, which may result in a need to recognize additional
impairment charges.
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Non-GAAP Financial Measures
We use certain non-GAAP financial measures, such as Net Cruise Cost , Adjusted
Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Income and
Adjusted EPS, to enable us to analyze our performance. See "Terms Used in this
Annual Report" for the definitions of these and other non-GAAP financial
measures. We utilize Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel
to manage our business on a day-to-day basis. In measuring our ability to
control costs in a manner that positively impacts net income, we believe changes
in Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to be the most
relevant indicators of our performance. As a result of our voluntary suspension
of sailings during the last nine months of 2020, we did not have any Capacity
Days in those periods. Accordingly, we have not presented herein per Capacity
Day data for the year ended December 31, 2020 .
As our business includes the sourcing of passengers and deployment of vessels
outside of the U.S. , a portion of our revenue and expenses are denominated in
foreign currencies, particularly British pound, Canadian dollar, euro and
Australian dollar which are subject to fluctuations in currency exchange rates
versus our reporting currency, the U.S. dollar. In order to monitor results
excluding these fluctuations, we calculate certain non-GAAP measures on a
Constant Currency basis, whereby current period revenue and expenses denominated
in foreign currencies are converted to U.S. dollars using currency exchange
rates of the comparable period. We believe that presenting these non-GAAP
measures on both a reported and Constant Currency basis is useful in providing a
more comprehensive view of trends in our business.
We believe that Adjusted EBITDA is appropriate as a supplemental financial
measure as it is used by management to assess operating performance. We also
believe that Adjusted EBITDA is a useful measure in determining our performance
as it reflects certain operating drivers of our business, such as sales growth,
operating costs, marketing, general and administrative expense and other
operating income and expense. Adjusted EBITDA is not a defined term under GAAP
nor is it intended to be a measure of liquidity or cash flows from operations or
a measure comparable to net income, as it does not take into account certain
requirements such as capital expenditures and related depreciation, principal
and interest payments and tax payments and it includes other supplemental
adjustments.
In addition, Adjusted Net Income and Adjusted EPS are non-GAAP financial
measures that exclude certain amounts and are used to supplement GAAP net income
and EPS. We use Adjusted Net Income and Adjusted EPS as key performance measures
of our earnings performance. We believe that both management and investors
benefit from referring to these non-GAAP financial measures in assessing our
performance and when planning, forecasting and analyzing future periods. These
non-GAAP financial measures also facilitate management's internal comparison to
our historical performance. In addition, management uses Adjusted EPS as a
performance measure for our incentive compensation. The amounts excluded in the
presentation of these non-GAAP financial measures may vary from period to
period; accordingly, our presentation of Adjusted Net Income and Adjusted EPS
may not be indicative of future adjustments or results. For example, for the
year ended December 31, 2019 , we incurred $30.6 million related to the
redeployment of Norwegian Joy from Asia to the U.S. We included this as an
adjustment in the reconciliation of Adjusted Net Income since the expenses are
not representative of our day-to-day operations; however, this adjustment did
not occur and is not included in the comparative period presented within this
Form 10-K.
You are encouraged to evaluate each adjustment used in calculating our non-GAAP
financial measures and the reasons we consider our non-GAAP financial measures
appropriate for supplemental analysis. In evaluating our non-GAAP financial
measures, you should be aware that in the future we may incur expenses similar
to the adjustments in our presentation. Our non-GAAP financial measures have
limitations as analytical tools, and you should not consider these measures in
isolation or as a substitute for analysis of our results as reported under GAAP.
Our presentation of our non-GAAP financial measures should not be construed as
an inference that our future results will be unaffected by unusual or
non-recurring items. Our non-GAAP financial measures may not be comparable to
other companies. Please see a historical reconciliation of these measures to the
most comparable GAAP measure presented in our consolidated financial statements
below in the "Results of Operations" section.
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Update Regarding COVID-19 Pandemic
Suspension of Cruise Voyages Due to the continued spread of COVID-19, evolving travel restrictions and limited access to ports around the world, inMarch 2020 , we implemented a voluntary suspension of all cruise voyages across our three brands, which has subsequently been extended throughMay 31, 2021 . This is the first time we have completely suspended our cruise voyages, and as a result of these unprecedented circumstances, we are not able to predict the full impact of such a suspension on our Company. The duration of any voluntary suspensions we have implemented and the resumption of operations both inside and outside ofthe United States will be dependent, in part, on our ability to comply with the Conditional Order, the severity and duration of the COVID-19 global pandemic, including further resurgences and new variants of COVID-19, the availability, distribution and efficacy of vaccines and therapeutics for COVID-19, the lifting of various travel restrictions and travel bans issued by various countries and communities around the world, as well as the availability of ports. For more information on the impact of COVID-19 on our business, see "Impact of COVID-19" and "Strategy for COVID-19" in Part I Item 1-Business in this annual report on Form 10-K.
Modified Policies Our brands have launched new cancellation policies for certain sailings booked during certain time periods to permit our guests to cancel cruises which were not part of our temporary suspension of voyages up to 15 days prior to embarkation and receive a refund in the form of a credit to be applied toward a future cruise. The future cruise credits issued under these programs are valid for any sailing throughDecember 31, 2022 , and we may extend the length of time these future cruise credits may be redeemed. The use of such credits may prevent us from garnering certain future cash collections as staterooms booked by guests with such credits will not be available for sale, resulting in less cash collected from bookings to new guests. We may incur incremental commission expense for the use of these future cruise credits. In addition, to provide more flexibility to our guests, we have also extended our modified final payment schedule for all voyages onRegent Seven Seas Cruises throughJuly 31, 2021 and for voyages onOceania Cruises and for the majority of bookings for voyages onNorwegian Cruise Line throughOctober 31, 2021 which now requires payment 60 days prior to embarkation versus the standard 120 days. Our brands currently expect to provide cash refunds for cash bookings for future sailings we may
cancel.
Update on Bookings
While overall booking volumes since the emergence of the COVID-19 global
pandemic remain below historical levels, there continues to be demand for future
cruise vacations. Despite reduced sales and marketing investments, and a travel
agency industry that has not been at full strength for months, bookings have
been strong for future periods resulting in an elongated booking window as
guests book further into the future. The Company's overall cumulative booked
position for the second half of 2021 remains below historical levels, driven by
continued uncertainty around timing of the resumption of cruising and the shift
of limited marketing investments to 2022 sailings. Pricing for the second half
of 2021 is in line with pre-pandemic levels, even after including the dilutive
impact of future cruise credits. While still early in the booking cycle, 2022
booking trends are very positive driven by strong pent up demand. The overall
cumulative booked position for the first half of 2022 is significantly ahead of
2019's record levels with pricing in line when excluding the dilutive impact of
future cruise credits and down including the dilutive future cruise credits. Our
operations may be suspended beyond our announced suspensions and as a result,
current booking data may not be informative. In addition, because of our updated
cancellation policies, bookings may not be representative of actual cruise
revenues.
The ongoing effects of the COVID-19 pandemic on our operations and global
bookings have had, and we believe they will continue to have, a significant
impact on our financial results and liquidity, and such negative impact may
continue well beyond the containment of the pandemic. Significant events
affecting travel, including COVID-19, typically have an impact on the demand for
cruise vacations, with the full extent of the impact generally determined by the
length of time the event influences travel decisions. Due to the unknown
duration and extent of the COVID-19 pandemic, uncertainty surrounding the
availability of COVID-19 vaccines and therapeutics, travel restrictions and
advisories, uncertainties around our ability to comply with the Conditional
Order, the potential unavailability of ports and/or
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destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, there are remaining uncertainties about when our full fleet will be back in service at historical occupancy levels and, accordingly, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty; however, we will report a net loss for the quarter endingMarch 31, 2021 and expect to report a net loss until we are able to resume voyages.
Financing Transactions and Cost Containment Measures
InMarch 2020 , NCLC borrowed the full amount of$1.55 billion under its existing$875 million Revolving Loan Facility and its then existing$675 million Epic Credit Facility. SinceMarch 2020 , we have taken several actions to bolster our financial position while our global cruise voyages are currently suspended, including a series of debt and equity financing transactions completed in May, July, November andDecember 2020 . InMay 2020 , NCLH and NCLC launched a series of capital markets transactions and raised approximately$2.4 billion , including the full exercise of options to purchase additional ordinary shares and exchangeable notes. InJuly 2020 , NCLH and NCLC launched a series of capital markets transactions and raised approximately$1.5 billion , including the full exercise of the option to purchase additional ordinary shares and partial exercise of the option to purchase additional exchangeable notes. From the proceeds, approximately$675 million was used to repay the Epic Credit Facility, which was terminated inJuly 2020 . InNovember 2020 , NCLH launched an offering of ordinary shares and raised$824 million . InDecember 2020 , NCLC launched an offering of its 5.875% Senior Notes due 2026 (the "2026 Senior Unsecured Notes") and raised approximately$850 million . We have also undertaken several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of the COVID-19 pandemic, through the reduction of capital expenditures as well as a reduction in operating expenses, including ship operating expenses and selling, general and administrative expenses. Cost savings initiatives to reduce selling, general and administrative expenses already implemented include the significant reduction or deferral of marketing expenditures, the implementation of hiring freezes, a 20% salary or hours reduction for certain shoreside team members, a pause in our 401(k) matching contributions and corporate travel freezes for shoreside employees. We have returned certain shoreside team members to full salary and hours and expect to continue to do so over time as we prepare to resume cruise voyages. Further, as part of our ongoing strategy to improve our ability to sustain the long-term health of the business and to preserve financial flexibility during the COVID-19 crisis, we have furloughed certain shoreside employees, subject to change based on business needs. While on furlough, employees will not receive salary or hourly wages, but will continue to receive health benefit coverage if they currently participate in a Company-sponsored plan.
See "-Liquidity and Capital Resources" below for more information.
Executive Overview
The ongoing effects of COVID-19 on our operations and global bookings have had a
significant adverse effect on our results of operations for the year ended
Total revenue decreased 80.2% to
For the year endedDecember 31, 2020 , we had net loss and diluted EPS of$(4.0) billion and$(15.75) , respectively. For the year endedDecember 31, 2019 , we had net income and diluted EPS of$930.2 million and$4.30 , respectively. Operating income (loss) decreased 395.7% to$(3.5) billion for the year endedDecember 31, 2020 from$1.2 billion for the year endedDecember 31, 2019 . We had Adjusted Net Loss and Adjusted EPS of$(2.2) billion and$(8.64) , respectively, for the year endedDecember 31, 2020 , including$1.8 billion of adjustments primarily consisting of expenses related to non-cash share-based compensation, losses on the extinguishment and modification of debt and impairment losses, compared to Adjusted Net Income and Adjusted EPS of$1.1 billion and$5.09 , respectively, for the year endedDecember 31, 2019 . 57
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A 154.0% decrease in Adjusted EBITDA was incurred for the same period. We refer you to our "Results of Operations" below for a calculation of Adjusted Net Income (Loss), Adjusted EPS and Adjusted EBITDA.
Results of Operations
The discussion below compares the results of operations for the year endedDecember 31, 2020 to the year endedDecember 31, 2019 . For a comparison of the Company's results of operations for the fiscal years endedDecember 31, 2019 to the year endedDecember 31, 2018 , see "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 , which was filed with theU.S. Securities and Exchange Commission onFebruary 27, 2020 .
We reported total revenue, total cruise operating expense, operating income and net income as follows (in thousands, except per share data):
Year Ended December 31,
2020 2019
Total revenue $ 1,279,908 $ 6,462,376
Total cruise operating expense $ 1,693,061 $ 3,663,261
Operating income (loss) $ (3,484,135) $ 1,178,077
Net income (loss) $ (4,012,514) $ 930,228
EPS:
Basic $ (15.75) $ 4.33
Diluted $ (15.75) $ 4.30
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The following table sets forth operating data as a percentage of total revenue:
Year Ended December 31,
2020 2019
Revenue
Passenger ticket 67.7 % 69.9 %
Onboard and other 32.3 % 30.1 %
Total revenue 100.0 % 100.0 %
Cruise operating expense
Commissions, transportation and other 29.7 % 17.4 %
Onboard and other 6.7 % 6.1 %
Payroll and related 40.7 % 14.3 %
Fuel 20.7 % 6.3 %
Food 5.1 % 3.4 %
Other 29.4 % 9.2 %
Total cruise operating expense 132.3 % 56.7 %
Other operating expense
Marketing, general and administrative 58.2 % 15.1 %
Depreciation and amortization 56.1 % 10.0 %
Impairment loss 125.6 % - %
Total other operating expense 239.9 % 25.1 %
Operating income (loss) (272.2) % 18.2 %
Non-operating income (expense)
Interest expense, net (37.7) % (4.2) %
Other income (expense), net (2.6) % 0.1 %
Total non-operating income (expense) (40.3) % (4.1) %
Net income (loss) before income taxes (312.5) % 14.1 %
Income tax benefit (expense) (1.0) % 0.3 %
Net income (loss) (313.5) % 14.4 %
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The following table sets forth selected statistical information:
Year Ended December 31,
2020 2019
Passengers carried 499,729 2,695,718
Passenger Cruise Days 4,278,602 20,637,949
Capacity Days 4,123,858 19,233,459
Occupancy Percentage 103.8 % 107.3 %
Gross Cruise Cost, Net Cruise Cost , Net Cruise Cost Excluding Fuel and Adjusted
Net Cruise Cost Excluding Fuel were calculated as follows (in thousands, except
Capacity Days and per Capacity Day data):
Year Ended December 31,
2020
Constant
2020 Currency 2019
Total cruise operating expense $ 1,693,061 $ 1,696,364 $ 3,663,261
Marketing, general and administrative expense 745,345 744,999 974,850
Gross Cruise Cost 2,438,406 2,441,363 4,638,111
Less:
Commissions, transportation and other expense 380,710 382,132 1,120,886
Onboard and other expense 85,678 85,678 394,673
Net Cruise Cost 1,972,018 1,973,553 3,122,552
Less: Fuel expense 264,712 264,712 409,602
Net Cruise Cost Excluding Fuel 1,707,306 1,708,841 2,712,950
Less Non-GAAP Adjustments:
Non-cash deferred compensation (1) 2,665 2,665 2,135
Non-cash share-based compensation (2) 111,297 111,297 95,055
Severance payments and other fees (3) - - 6,514
Redeployment of Norwegian Joy (4) - - 7,051
Adjusted Net Cruise Cost Excluding Fuel $ 1,593,344 $ 1,594,879 $ 2,602,195
Capacity Days 4,123,858 4,123,858 19,233,459
Gross Cruise Cost per Capacity Day $ 241.15
Net Cruise Cost per Capacity Day $ 162.35
Net Cruise Cost Excluding Fuel per Capacity Day $ 141.05
Adjusted Net Cruise Cost Excluding Fuel per
Capacity Day (1) Non-cash deferred compensation expenses related to the crew pension plan and
other crew expenses, which are included in payroll and related expense.
Non-cash share-based compensation expense related to equity awards, which are (2) included in marketing, general and administrative expense and payroll and
related expense.
(3) Severance payments related to restructuring costs are included in marketing,
general and administrative expense.
Expenses related to the redeployment of Norwegian Joy from
operating expense and marketing, general and administrative expense.
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Adjusted Net Income (Loss) and Adjusted EPS were calculated as follows (in thousands, except share and per share data):
Year Ended December 31,
2020 2019
Net income (loss) $ (4,012,514) $ 930,228
Non-GAAP Adjustments:Non-cash deferred compensation (1) 3,967
3,514
Non-cash share-based compensation (2) 111,297
95,055
Severance payments and other fees (3) -
6,514
Extinguishment and modification of debt (4) 27,795
16,676
Amortization of intangible assets (5) 9,831
18,414
Redeployment of Norwegian Joy (6) -
30,629
Impairment loss (7) 1,633,337 -
Non-cash interest on beneficial conversion feature and payment-in-kind premium (8)
26,082 -
Adjusted Net Income (Loss) $ (2,200,205)
254,728,932 216,475,076
Diluted earnings (loss) per share$ (15.75)
$ 4.30 Adjusted EPS$ (8.64) $ 5.09
Non-cash deferred compensation expenses related to the crew pension plan and (1) other crew expenses are included in payroll and related expense and other
income (expense), net.
Non-cash share-based compensation expenses related to equity awards are (2) included in marketing, general and administrative expense and payroll and
related expense.
(3) Severance payments related to restructuring costs are included in marketing,
general and administrative expense.
(4) Losses on extinguishments and modifications of debt are included in interest
expense, net.
(5) Amortization of intangible assets related to the Acquisition of Prestige are
included in depreciation and amortization expense.
Expenses related to the redeployment of Norwegian Joy from
operating expense, marketing, general and administrative expense and
depreciation and amortization expense.
Impairment loss consists of goodwill, trade name and property and equipment (7) impairments. The impairments of goodwill and trade names are included in
impairment loss and the impairment of property and equipment is included in
depreciation and amortization expense.
Non-cash interest expense related to a beneficial conversion feature (8) recognized on our exchangeable notes and additional payment-in-kind interest
recognized upon transfer to the debt principal, which is recognized in
interest expense, net.
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EBITDA and Adjusted EBITDA were calculated as follows (in thousands):
Year Ended December 31,
2020 2019
Net income (loss) $ (4,012,514) $ 930,228
Interest expense, net 482,313 272,867
Income tax (benefit) expense 12,467 (18,863)
Depreciation and amortization expense 717,840 646,188 EBITDA
(2,799,894) 1,830,420
Other (income) expense, net (1) 33,599 (6,155)
Non-GAAP Adjustments:
Non-cash deferred compensation (2) 2,665 2,135
Non-cash share-based compensation (3) 111,297 95,055 Severance payments and other fees (4)
- 6,514
Redeployment of Norwegian Joy (5) - 7,051
Impairment loss (6) 1,607,797 -
Adjusted EBITDA $ (1,044,536) $ 1,935,020 In 2020, primarily consists of gains and losses, net for forward currency (1) exchanges and derivatives no longer designated as hedges. In 2019, primarily
consists of gains and losses, net for forward currency exchanges and proceeds
from insurance and litigation settlements.
(2) Non-cash deferred compensation expenses related to the crew pension plan and
other crew expenses are included in payroll and related expense.
Non-cash share-based compensation expense related to equity awards are (3) included in marketing, general and administrative expense and payroll and
related expense.
(4)Severance payments related to restructuring costs are included in marketing, general and administrative expense.
(5)Expenses related to the redeployment of Norwegian Joy from
(6) Impairment loss consists of goodwill and trade name impairments.
Year Ended
Revenue Total revenue decreased 80.2% to$1.3 billion in 2020 compared to$6.5 billion in 2019. The adverse impact on revenue was due to the cancellation of the vast majority of sailings in 2020 as a result of the COVID-19 pandemic, which resulted in a 78.6% decrease in Capacity Days.
Expense
Total cruise operating expense decreased 53.8% in 2020 compared to 2019. In 2020, our expenses subsequent to the suspension of voyages primarily included the cost of protected commissions and crew costs, including salaries, food and other repatriation costs; fuel; and other ongoing costs such as insurance and ship maintenance. To repatriate crew as fast as possible, the Company leveraged certain ships in its fleet to assist with the repatriation efforts along with utilizing scheduled chartered flights. Additionally, during the first quarter of 2020, there was a notable increase from 2019 in fuel expense associated with theInternational Maritime Organization's 2020 regulations, and cruise operating expense increased due to the addition of Norwegian Encore and Seven Seas Splendor to the fleet. Gross Cruise Cost decreased 47.4% in 2020 compared to 2019, due to a decrease in total cruise operating expense described above in addition to a 23.5% decrease in marketing, general and administrative expenses primarily due to cost savings initiatives in connection with the COVID-19 pandemic as described under "Update Regarding COVID-19 Pandemic-Financing Transactions and Cost Containment Measures." Total other operating expense increased 89.4% in 2020 compared to 2019 primarily due to the impairment of goodwill and trade names triggered by the COVID-19 pandemic. Depreciation and amortization expense also increased primarily due to the delivery of Norwegian Encore in the fourth quarter of 2019 and Seven Seas Splendor in the first quarter of 2020 as well as ship improvement projects. 62
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Interest expense, net was$482.3 million in 2020 compared to$272.9 million in 2019. The increase in 2020 is driven by additional debt outstanding at higher interest rates, partially offset by lower LIBOR. In 2020, interest expense also reflects losses on extinguishment of debt and debt modification costs of$27.8 million . 2019 included losses on extinguishment of debt and debt modification costs of$16.7 million . Other income (expense), net was expense of$33.6 million in 2020 compared to income of$6.2 million in 2019. Other expense in 2020 was primarily due to losses from foreign currency exchange and fuel hedges recognized in earnings as a result of the forecasted transactions no longer being probable or no longer designated as hedges. Other income in 2019 was primarily due to gains from insurance proceeds and a litigation settlement partially offset by losses on foreign currency exchange. Income tax benefit (expense) was an expense of$12.5 million in 2020 compared to a benefit of$18.9 million in 2019. In 2020, the tax expense is primarily due to a valuation allowance of$39.6 million recognized in the fourth quarter on certain net operating loss carryforwards partially offset by operating losses. During 2018, we implemented certain tax restructuring strategies that created our ability to utilize the net operating loss carryforwards of Prestige, for which we had previously provided a full valuation allowance. As a result, we recorded a tax benefit of$35.7 million in connection with the reversal of substantially all of the valuation allowance in 2019.
Liquidity and Capital Resources
General
As ofDecember 31, 2020 , our liquidity was$3.3 billion , consisting of cash and cash equivalents, and our working capital was$1.6 billion . The increase in working capital is a result of the actions described below and is expected to decrease as advance ticket sales increase leading up to when we are able to resume voyages. SinceMarch 2020 , we have taken several actions to bolster our financial condition while our global cruise voyages are suspended. InMarch 2020 , NCLC borrowed the full amount of$1.55 billion under its$875 million Revolving Loan Facility and its then existing$675 million Epic Credit Facility. The Epic Credit Facility was repaid inJuly 2020 . ThroughDecember 31, 2020 , the Company received additional financing through various debt financings and equity offerings totaling$5.6 billion in gross proceeds. See Note 8 - "Long-Term Debt" for further information on the debt financings. The NCLH equity offerings in May, July andNovember 2020 resulted in 100,984,848 ordinary shares being issued, which does not include any ordinary shares that may be issued pursuant to our exchangeable notes. We have taken additional measures to improve our liquidity through deferring certain ship milestone payments, deferring certain debt amortization payments and extending certain maturities under other agreements, including under our agreements with export credit agencies and related governments. See Note 8 - "Long-Term Debt" for further information. InJanuary 2021 , we amended our Senior Secured Credit Facility to further defer certain amortization payments prior toJune 30, 2022 and to waive certain financial and other covenants throughDecember 31, 2022 . In connection with such amendment, our minimum liquidity requirement was increased to$200 million and such requirement applies throughDecember 31, 2022 . Although the Pride of America Credit Facility and Jewel Credit Facility amortization was not deferred, we have entered into an amendment to each facility to waive certain financial and other covenants through the maturity dates of such facilities. The amendments to the Pride of America Credit Facility and Jewel Credit Facility also require us to maintain at least$200 million in free liquidity for the duration of the covenant waiver period. In connection with the foregoing amendments, NCLC and its restricted subsidiaries' ability to make certain investments, restricted payments, prepayments of certain indebtedness and certain asset sales has also been further restricted. The Company intends to refinance the Pride of America Credit Facility and Jewel Credit Facility as soon as practicable. In addition, inFebruary 2021 , we amended certain of our export-credit backed facilities to defer amortization payments aggregating approximately$680 million throughMarch 31, 2022 . We also amended all of our export-credit backed facilities to provide that, from the effective date of the amendments to and includingDecember 31, 2022 , certain of the financial covenants under such facilities will be suspended and the free liquidity test will be replaced by a covenant to maintain at least$200 million in free liquidity. The amendments also made certain other changes to the facilities, including imposing further restrictions on NCLC's ability to incur debt, create security, issue equity
and
make dividends
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and other distributions. See Note 8 - "Long-Term Debt" for further information
on amendments completed subsequent to
The Company has also undertaken several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of the COVID-19 pandemic, through the reduction of capital expenditures and operating expenses, including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension, resulting in lower crew payroll expense. See "Update Regarding COVID-19 Pandemic-Financing Transactions and Cost Containment Measures" above for further information. The Company's monthly average cash burn for the fourth quarter 2020 was approximately$190 million and included approximately$15 million per month of additional relaunch-related expenses as the Company began preparing vessels for a potential return to service in early 2021, in connection with the CDC Conditional Order, which did not materialize. The incremental relaunch costs were associated with crew re-staffing, re-positioning and provisioning of vessels, implementation of new health and safety protocols and a ramp-up of demand-generating marketing investments which helped further stimulate the strong future demand the Company is experiencing. For the first quarter of 2021, the Company expects the average cash burn rate to temporarily remain elevated at approximately$190 million per month, or approximately$170 million per month excluding non-recurring debt modification costs, as it ramps down relaunch-related expenses and repatriates crew. The Company has incurred approximately$60 million of one-time debt deferral and modification costs and fees in the first quarter of 2021 as a result of successful debt deferrals and covenant waivers and suspensions, which combined with newbuild payment extensions, have resulted in approximately$1 billion of additional liquidity over the next 12 months. Once the ramp down of relaunch-related expenses are complete, the Company expects its average cash burn rate to decrease and remain at reduced levels until return to service preparations resume. Cash burn rates include ongoing ship operating expenses, administrative operating expenses, interest expense, taxes and expected non-newbuild capital expenditures and excludes cash refunds of customer deposits as well as cash inflows from new and existing bookings, newbuild related capital expenditures and other working capital changes. Future cash burn rate estimates also exclude unforeseen expenses. The fourth quarter 2020 cash burn rate and first quarter 2021 estimate also reflect the deferral of debt amortization and newbuild related payments. We continue to expect a gradual phased relaunch of our ships after the voyage suspension period, with our ships initially operating at reduced occupancy levels. The timing for bringing our ships back to service and the percentage of our fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, further resurgences and new variants of COVID-19, the availability, distribution, and efficacy of vaccines and therapeutics for COVID-19, our ability to comply with governmental regulations, port availability, travel restrictions, bans and advisories, and our ability to re-staff our ships and implement new health and safety protocols. The estimation of our future cash flow projections includes numerous assumptions that are subject to various risks and uncertainties. Until we are able to begin our phased relaunch, our projected liquidity requirements reflect our principal assumptions surrounding ongoing operating costs during the suspension of cruise voyages, as well as liquidity requirements for financing costs and necessary capital expenditures, and our ability to implement further cash conservation strategies. Refer to Note 2 - "Summary of Significant Accounting Policies" for further information on liquidity and management's plan. There can be no assurance that the accuracy of the assumptions used to estimate our liquidity requirements will be correct, and our ability to be predictive is uncertain due to the unknown magnitude and duration of the COVID-19 global pandemic. Based on the liquidity estimates and our current resources, we have concluded we have sufficient liquidity to satisfy our obligations for at least the next twelve months even in the event we do not resume cruise voyages during that period. Nonetheless, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future, especially if our suspension of cruise voyages is prolonged. AtDecember 31, 2020 , we were in compliance with all of our debt covenants. Subsequent toDecember 31, 2020 , we have received certain financial and other debt covenant waivers throughDecember 31, 2022 and added new free liquidity requirements. If we do not continue to remain in compliance with our covenants, we would have to seek to amend the covenants. However, no assurances can be made that such amendments would be approved by our lenders. 64
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Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which could have a material adverse impact to our operations and liquidity. SinceMarch 2020 , Moody's has downgraded our long-term issuer rating to B2, our senior secured rating to B1 and our senior unsecured rating to Caa1. SinceApril 2020 , S&P Global has downgraded our issuer credit rating to B+, lowered our issue-level rating on our$875 million Revolving Loan Facility and$1.5 billion Term Loan A Facility to BB, our issue-level rating on our$675 million 2024 Senior Secured Notes and$750 million 2026 Senior Secured Notes to BB- and our senior unsecured rating toB. If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt or equity financing will be further negatively impacted. There is no guarantee that debt or equity financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations. As ofDecember 31, 2020 , we had advance ticket sales of$1.2 billion , including the long-term portion, which included approximately$0.85 billion of future cruise credits. We also have agreements with our credit card processors that, as ofDecember 31, 2020 , governed approximately$1.0 billion in advance ticket sales that had been received by the Company relating to future voyages. These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, that the Company maintain a reserve which would be satisfied by posting collateral. Although the agreements vary, these requirements may generally be satisfied either through a percentage of customer payments withheld or providing cash funds directly to the card processor. Any cash reserve or collateral requested could be increased or decreased. As ofDecember 31, 2020 , we had a reserve of approximately$200 million with a credit card processor recognized in other long-term assets, and inJanuary 2021 , we provided additional cash collateral of$250 million . Additionally, we are required to fund all refunds until further notice and 100% of incoming advance ticket sales deposits with this credit card processor will be withheld and are not expected to the released until the credit card processor's exposure is fully collateralized. As ofDecember 31, 2020 , the exposure was approximately$780 million . The reserve shortfall of approximately$330 million , after taking into effect the January additional collateral provided, will decrease as refunds are funded, cruises are provided and amounts withheld by the credit card processor are allocated to the reserve rather than remitted to the Company. We may be required to find new credit card processors, pledge additional collateral and/or post cash reserves or take other actions that may further reduce our liquidity.
Sources and Uses of Cash
In this section, references to 2020 refer to the year ended
Net cash used in operating activities was$2.6 billion in 2020 compared to net cash provided by operating activities of$1.8 billion in 2019. This decrease was due to the suspension of global cruise voyages during 2020. The net cash used in operating activities in 2020 included net loss of$(4.0) billion , a decrease in advance ticket sales of$811.8 million and timing differences in cash receipts and payments relating to various operating assets and liabilities, which was offset primarily by a$1.6 billion impairment loss. The change in net cash provided by operating activities in 2019 includes net income of$930.2 million as well as timing differences in cash receipts and payments relating to various operating assets and liabilities, including an increase in advance ticket sales of$347.4 million . Net cash used in investing activities was$1.0 billion in 2020, primarily related to payments for the delivery of Seven Seas Splendor, ships under construction, ship improvement projects and shoreside projects. Net cash used in investing activities was$1.7 billion in 2019, primarily related to payments for the delivery of Norwegian Encore, ships under construction, ship improvements and shoreside projects. Net cash provided by financing activities was$6.6 billion in 2020, primarily due to$6.1 billion in proceeds from the issuance of debt and$1.5 billion in proceeds from issuance of NCLH's ordinary shares. Net cash used in financing activities was$53.4 million in 2019, primarily due to the repurchase of$349.9 million of NCLH's ordinary shares, net 65
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repayments of our Revolving Loan Facility and the net refinancing of term loans partially offset by the issuance of new debt.
For the Company's cash flow activities for the fiscal year endedDecember 31, 2018 , see "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 , which was filed with theU.S. Securities and Exchange Commission onFebruary 27, 2020 .
Future Capital Commitments
Future capital commitments consist of contracted commitments, including ship construction contracts. After recent deferrals, anticipated expenditures related to ship construction contracts were$0.4 billion ,$1.6 billion and$2.5 billion for the years endingDecember 31, 2021 , 2022 and 2023, respectively. The Company has export credit financing in place for the anticipated expenditures related to ship construction contracts of$0.2 billion ,$0.8 billion and$1.8 billion for the years endingDecember 31, 2021 , 2022 and 2023, respectively. Subsequent toDecember 31, 2020 , we also have a memorandum of agreement in place to finance another$35.2 million . Future expected capital expenditures will significantly increase our depreciation and amortization expense. For the Norwegian brand, Project Leonardo will introduce six additional ships, each ranging from approximately 140,000 to 156,300 Gross Tons with approximately 3,300 to 3,550 Berths, with expected delivery dates from 2022 through 2027. For the Regent brand, we have one Explorer Class Ship on order to be delivered in 2023, which will be approximately 55,000 Gross Tons and 750 Berths. For the Oceania Cruises brand, we have orders for two Allura Class Ships to be delivered in 2023 and 2025. Each of the Allura Class Ships will be approximately 67,000 Gross Tons and 1,200 Berths. The combined contract prices of the nine ships on order for delivery was approximately €7.1 billion, or$8.7 billion based on the euro/U.S. dollar exchange rate as ofDecember 31, 2020 . We have obtained export credit financing which is expected to fund approximately 80% of the contract price of each ship, subject to certain conditions. We do not anticipate any contractual breaches or cancellations to occur. However, if any such events were to occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.
Capitalized interest for the years ended
Off-Balance Sheet Transactions
None.
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Contractual Obligations
As of
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
Long-term debt (1) $ 12,152,083 $ 795,895 $ 1,909,485 $ 5,780,791 $ 3,665,912
Operating leases (2) 236,185 27,371 63,971 63,892 80,951
Ship construction contracts (3) 8,471,993 463,549 3,286,557 2,851,080 1,870,807
Port facilities (4) 2,067,777 71,691 142,756 145,954 1,707,376
Interest (5) 2,308,176 498,851 935,898 596,396 277,031
Other (6) 1,157,261 287,680 457,893 408,991 2,697
Total $ 26,393,475 $ 2,145,037 $ 6,796,560 $ 9,847,104 $ 7,604,774 Long-term debt excludes discounts, premiums, deferred financing fees and a
beneficial conversion feature, which are a direct addition or deduction from (1) the carrying value of the related debt liability in the consolidated balance
sheets. After giving effect to the debt deferrals discussed more fully in
Note 8 - "Long-Term Debt", which were finalized after
obligations for the payment of long-term debt are as follows (in thousands):
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
Long-term debt $ 12,152,083 $ 124,829 $ 2,110,816 $ 6,097,640 $ 3,818,798 (2) Operating leases are primarily for port facilities and offices.
Ship construction contracts are for our newbuild ships based on the euro/
dollar exchange rate as of
2020,
we have a memorandum of agreement to finance another
Port facilities represent our usage of certain port facilities. Our port
facilities agreements generally include force majeure provisions that may
alleviate an unspecified amount of obligations under minimum guarantees (4) during the COVID-19 pandemic. In 2020, the Company provided the required
notice that such provisions were being enacted. Customary practice is to
prorate these obligations for the annual period impacted. A portion of our
port fees may be waived as a result of these provisions, including those
ports that are presented within operating leases in the table above.
Interest includes fixed and variable rates with LIBOR held constant as of"Long-Term Debt", interest obligations for debt outstanding as of December
31, 2020 are as follows (in thousands):
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
Interest $ 2,352,474 $ 504,197 $ 968,782 $ 600,479 $ 279,016 Other includes future commitments for service, maintenance and other business
enhancement capital expenditure contracts. Certain contracts to provide many
of our hotel and restaurant services, including both food and labor costs, (6) contain provisions which provide for reduced obligations in the case of a
ship(s) removed from operations. As a result, we may only be required to
cover reasonable costs during the time period whereby our operations have
temporarily been suspended. These reasonable costs are subject to ongoing
negotiations.
Other
Certain service providers may require collateral in the normal course of our business. The amount of collateral may change based on certain terms and conditions.
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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 transactions 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.
We refer you to "-Liquidity and Capital Resources" for information regarding collateral provided to our credit card processors.
Funding Sources
Certain of our debt agreements contain covenants that, among other things, require us to maintain a minimum level of liquidity, as well as limit our net funded debt-to-capital ratio, and maintain certain other ratios. Substantially all of our ships and other property and equipment are pledged as collateral for certain of our debt. We believe we were in compliance with these covenants as ofDecember 31, 2020 . In addition, our existing debt agreements restrict, and any of our future debt arrangements may restrict, among other things, the ability of our subsidiaries, including NCLC, to make distributions and/or pay dividends to NCLH and NCLH's ability to pay cash dividends to its shareholders. NCLH is a holding company and depends upon its subsidiaries for their ability to pay distributions to it to finance any dividend or pay any other obligations of NCLH. However, we do not believe that these restrictions have had or are expected to have a significant impact on our ability to meet our cash obligations. In light of the measures described under "Update Regarding COVID-19-Financing Transactions and Cost Containment Measures", we believe our cash on hand, expected future operating cash inflows and our ability to issue debt securities or additional equity securities, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next 12-month period. Certain debt covenant waivers were received in 2021 to enable the Company to maintain this compliance. Refer to "-Liquidity and Capital Resources" for further information regarding the debt covenant waivers. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations. Furthermore, we anticipate that we will need additional equity and/or debt financing to fund our operations in the future, especially if our suspension of cruise voyages is prolonged.
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