2016 Annual Report for Norwegian Cruiseline Holdings - 42

term and conditions of the derivatives with the underlying risk being hedged. We do not hold or issue derivatives for trading or other speculative
purposes. Derivative positions are monitored using techniques including market valuations and sensitivity analyses.
Interest Rate Risk
As of December 31, 2016, we had interest rate swap agreements to hedge our exposure to interest rate movements and to manage our interest expense.
As of December 31, 2016, 55.0% of our debt was fixed and 45.0% was variable, which includes the effects of the interest rate swaps. The notional
amount of outstanding debt associated with the interest rate swap agreements as of December 31, 2016 was $308.5 million. Based on our December 31,
2016 outstanding variable rate debt balance, a one percentage point increase in annual LIBOR would increase our annual interest expense by
approximately $29.1 million excluding the effects of capitalization of interest.
Foreign Currency Exchange Rate Risk
As of December 31, 2016, we had foreign currency derivatives to hedge the exposure to volatility in foreign currency exchange rates related to our ship
construction contracts denominated in euros. These derivatives hedge the foreign currency exchange rate risk on a portion of the payments on our ship
construction contracts. The payments not hedged aggregate €146.9 million, or $154.5 million based on the euro/U.S. dollar exchange rate as of
December 31, 2016. We estimate that a 10% change in the euro as of December 31, 2016 would result in a $15.5 million change in the U.S. dollar value
of the foreign currency denominated remaining payments.
Fuel Price Risk
Our exposure to market risk for changes in fuel prices relates to the forecasted purchases of fuel on our ships. Fuel expense, as a percentage of our total
cruise operating expense, was 11.8%, 13.5% and 16.8% for the years ended December 31, 2016, 2015 and 2014, respectively. We use fuel derivative
agreements to mitigate the financial impact of fluctuations in fuel prices and as of December 31, 2016, we had hedged approximately 78%, 66%, 48%
and 18% of our 2017, 2018, 2019 and 2020 projected metric tons of fuel purchases, respectively. We estimate that a 10% increase in our weightedaverage fuel price would increase our anticipated 2017 fuel expense by $28.5 million. This increase would be partially offset by an increase in the fair
value of our fuel swap agreements of $17.8 million. Fair value of our derivative contracts is derived using valuation models that utilize the income
valuation approach. These valuation models take into account the contract terms such as maturity, as well as other inputs such as fuel types, fuel curves,
creditworthiness of the counterparty and the Company, as well as other data points.
Item 8. Financial Statements and Supplementary Data
Our Financial Statements and Quarterly Selected Financial Data are included beginning on page F-1 of this report.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e), as of December 31, 2016. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their
control objectives. Based upon management's evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of December 31, 2016 to provide reasonable assurance that the information required to be disclosed by us in the reports
we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission, and that it is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO Framework"). Based on this evaluation under
the COSO Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2016.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers
LLP, an independent registered certified public accounting firm, as stated in their report, which is included on page F-1.

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