2018 Annual Report for Norwegian Cruiseline Holdings - 26

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 increases in duties and taxes, risks relating to anti-bribery laws, as well as risks that laws
and policies affecting cruising, vacation or maritime businesses, or governing the operations of foreign-based companies may change.
Additional risks include imposition of trade barriers, withholding and other taxes on remittances and other payments by subsidiaries and
changes in and application of foreign taxation structures, including value added taxes. If we are unable to address these risks adequately, our
business, financial condition and results of operations could be materially and adversely affected.
Operating internationally also exposes us to numerous and sometimes conflicting legal and regulatory requirements. In many parts of the
world, including countries in which we operate, practices in the local business communities might not conform to international business
standards. We have implemented safeguards and policies to prevent violations of various anti-corruption laws that prohibit improper
payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business by our
employees and agents. However, our existing safeguards and policies and any future improvements may prove to be less than effective and
our employees or agents may engage in conduct prohibited by our policies, but for which we nevertheless may be held responsible. If our
employees or agents violate our policies, if we fail to maintain adequate record-keeping and internal accounting practices to accurately
record our transactions or if we fail to implement or maintain other adequate safeguards, we may be subject to regulatory sanctions or severe
criminal or civil sanctions and penalties.
We have operations in and source passengers from the U.K. and other member countries of the European Union. On June 23, 2016, voters in
the U.K. approved an advisory referendum to withdraw from the European Union. Negotiations on the terms of the U.K.'s future relationship
with the European Union are ongoing, with the U.K. due to exit the European Union on March 29, 2019. While negotiations are continuing,
there remains considerable uncertainty around the withdrawal. Current discussions between the U.K. and the European Union may result in
any number of outcomes including an extension or delay of the U.K.'s withdrawal from the European Union. The consequences for the
economies of the U.K. and other European Union member states as a result of the U.K.'s withdrawal from the European Union are unknown
and unpredictable, which could make it more difficult to source passengers from these regions. The proposed withdrawal could also
potentially adversely affect tax, legal and regulatory regimes to which our business in the region is subject and disrupt the free movement of
goods, services and people between the U.K. and the European Union. These events could have a material adverse effect on our business,
financial condition and results of operations.
Changes in fuel prices and/or other cruise operating costs would impact the cost of our cruise ship operations and our hedging strategies
may not protect us from increased costs related to fuel prices.
Fuel expense is a significant cost for our Company. Future increases in the cost of fuel globally or regulatory requirements which require us
to use more expensive types of fuel would increase the cost of our cruise ship operations. For example, the IMO's convention entitled
Prevention of Pollution from Ships (MARPOL) has set a global limit on fuel sulfur content of 0.5% (reduced from the current 3.5% global
limit) beginning January 2020. Various compliance methods, such as the use of low-sulfur fuels or exhaust gas cleaning systems that reduce
an equivalent amount of sulfur emissions, may be utilized. We have elected to install exhaust gas cleaning systems on some ships in our
fleet, which will allow us to continue to use high-sulfur fuel on those ships. However, if exhaust gas cleaning systems are not widely used in
the industry, low demand for high-sulfur fuel may increase the price for such fuel. Other ships in our fleet that do not have exhaust gas
cleaning systems will be required to use low-sulfur fuels. Low-sulfur fuels may be costly due to increased demand and scarcity if suppliers
are not able to produce sufficient quantities. In addition, we could experience increases in other cruise operating costs due to market forces
and economic or political instability resulting from increases or volatility in fuel expense. Despite any fuel hedges we are currently a party to,
or may enter into in the future, increases in fuel prices or other cruise operating costs could have a material adverse effect on our business,
financial condition and results of operations if we are unable to recover these increased costs through price increases charged to our guests.
Our hedging program may not be successful in mitigating higher fuel costs, and any price protection provided may be limited due to market
conditions, including choice of hedging instruments, breakdown of correlation between hedging instrument and market price of fuel and
failure of hedge counterparties. To the extent that we use hedge contracts that have the potential to create an obligation to pay upon
settlement if fuel prices decline significantly, such hedge contracts may limit our ability to benefit fully from lower fuel costs in the future.
There can be no assurance that our hedging arrangements will be cost-effective, will provide any particular level of protection against rises in
fuel prices or that our counterparties will be able to perform under our hedging arrangements. Additionally, deterioration in our financial
condition could negatively affect our ability to enter into new hedge contracts in the future.

2018 Annual Report for Norwegian Cruiseline Holdings

Table of Contents for the Digital Edition of 2018 Annual Report for Norwegian Cruiseline Holdings