2018 Annual Report for Norwegian Cruiseline Holdings - F-11

Foreign Currency
The majority of our transactions are settled in U.S. dollars. Gains or losses resulting from transactions denominated in other currencies are
recognized in income at each balance sheet date. We recognized (gains) losses of $(19.8) million, $14.2 million and $(4.5) million for the
years ended December 31, 2018, 2017 and 2016, 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 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, changes within the measurement period that result from new information about facts and circumstances that
existed at the acquisition date shall be recognized through a corresponding adjustment to goodwill. Subsequent to the measurement period,
all other changes shall be reported as a reduction or increase to income tax expense 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."

F-11

2018 Annual Report for Norwegian Cruiseline Holdings

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