2018 Annual Report for Norwegian Cruiseline Holdings - 39

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. Although we believe that our estimates and judgments are
reasonable, due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recoveries, it is possible that
certain matters may be resolved for amounts materially different from any estimated provisions or previous disclosures.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures, such as Net Revenue, Adjusted Net Revenue, Net Yield, Adjusted Net Yield, 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
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. 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 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 Revenue and Adjusted Net Yield, which exclude certain business combination accounting entries, are non-GAAP
financial measures that we believe are useful as supplemental measures in evaluating the performance of our operating business and provide
greater transparency into our results of operations. 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 Revenue, Adjusted Net Yield, Adjusted Net Income and Adjusted
EPS may not be indicative of future adjustments or results. For example, for the year ended December 31, 2017, we incurred an impairment
of $2.9 million related to assets held for sale. A similar impairment was not incurred in the years ended December 31, 2018 or December 31,
2016. We included this as an adjustment in the reconciliation of Adjusted Net Income since this impairment amount was not representative
of our day-to-day operations and we have included similar non-representative adjustments in prior periods.

2018 Annual Report for Norwegian Cruiseline Holdings

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