2016 Annual Report for Norwegian Cruiseline Holdings - F-10

Foreign Currency
The majority of our transactions are settled in U.S. dollars. We translate assets and liabilities of our foreign subsidiaries at exchange rates in effect
at the balance sheet date. Gains or losses resulting from transactions denominated in other currencies are recognized in our consolidated
statements of operations within other income (expense), net and such gains were approximately $4.5 million, $11.0 million and $6.0 million for
the years ended December 31, 2016, 2015 and 2014, respectively.
Derivative Instruments and Hedging Activity
We enter into derivative contracts to reduce our exposure to fluctuations in foreign currency exchange rates, interest rates and fuel prices. The
criteria used to determine whether a transaction qualifies for hedge accounting treatment includes the correlation between fluctuations in the fair
value of the hedged item and the fair value of the related derivative instrument and its effectiveness as a hedge. As the derivative is marked to fair
value, we elected an accounting policy to net the fair value of our derivatives when a master netting arrangement exists with our counterparties.
A derivative instrument that hedges a forecasted transaction or the variability of cash flows related to a recognized asset or liability may be
designated as a cash flow hedge. Changes in fair value of derivative instruments that are designated as cash flow hedges are recorded as a
component of accumulated other comprehensive income (loss) until the underlying hedged transactions are recognized in earnings. To the extent
that an instrument is not effective as a hedge, gains and losses are recognized in other income (expense), net in our consolidated statements of
operations. Realized gains and losses related to our effective fuel hedges are recognized in fuel expense. For presentation in our consolidated
statements of cash flows, we have elected to classify the cash flows from our cash flow hedges in the same category as the cash flows from the
items being hedged.
Concentrations of Credit Risk
We monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. Credit risk,
including but not limited to counterparty non-performance under derivative instruments, our New Revolving Loan Facility and new ship progress
payment guarantees, is not considered significant, as we primarily conduct business with large, well-established financial institutions and
insurance companies that we have well-established relationships with and that have credit risks acceptable to us or the credit risk is spread out
among a large number of creditors. We do not anticipate non-performance by any of our significant counterparties.
Insurance
We use a combination of insurance and self-insurance for a number of risks including claims related to crew and guests, hull and machinery, war
risk, workers' compensation, property damage, employee healthcare and general liability. Liabilities associated with certain of these risks,
including crew and passenger claims, are estimated actuarially based upon known facts, historical trends and a reasonable estimate of future
expenses. While we believe these accruals are adequate, the ultimate losses incurred may differ from those recorded.
Income Taxes
Deferred tax assets and liabilities are calculated in accordance with the liability method. Deferred taxes are recorded using the currently enacted
tax rates that apply in the periods that the differences are expected to reverse. Deferred taxes are not discounted.
We provide a valuation allowance on deferred tax assets when it is more likely than not that such assets will not be realized. With respect to
acquired deferred tax assets, future reversals of the valuation allowance will first be applied against goodwill and other intangible assets before
recognition of a benefit in our consolidated statements of operations.
Share-Based Compensation
We recognize expense for our share-based compensation awards using a fair-value-based method. Share-based compensation expense is
recognized over the requisite service period for awards that are based on a service period and not contingent upon any future performance. We
refer you to Note 10-"Employee Benefits and Share-Based Compensation."
Segment Reporting
We have concluded that our business has a single reportable segment. Each brand, Norwegian, Oceania Cruises and Regent constitutes a business
for which discrete financial information is available and management regularly reviews the operating results and, therefore, each brand is
considered an operating segment. Our operating segments have similar economic and qualitative characteristics, including similar long-term
margins and similar products and services; therefore, we aggregate all of the operating segments into one reportable segment.
Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to U.S.-sourced guests who make
reservations in the U.S. Revenue attributable to U.S.-sourced guests was 81%, 75% and 73% for the years ended December 31, 2016, 2015 and
2014, respectively. No other individual country's revenues exceeded 10% in any of our last three years.
F-10

Table of Contents for the Digital Edition of 2016 Annual Report for Norwegian Cruiseline Holdings